These days you often hear “Mutual Funds” as a means of investment. People probably have most of their money in a bank savings account and their biggest investment may be their home. Apart from that, investing is probably something people simply do not have the time or knowledge to get involved in. This is why investing through mutual funds has become this popular.
Mutual Fund is a collective investment scheme. In Mutual Fund money is collected from investors by an Asset Management Company and invested in different avenues for the investors based on the objects of the scheme. The funds issues units to the investors based on the amount they invested. For example, if the unit price is Rs.10 and Rs.1000 is invested, then they issue 100 units will be issued to the investor. The investments may be in shares, debt securities, money-market securities or a combination of these. Those securities are professionally managed on behalf of the unit holders. Mutual Funds have many other benefits that drive investors’ attention. I made a try in briefing them in the simplest form.
Benefits of Mutual Funds
- Mutual Funds clearly present their investment strategy to their investors . Regularly give them information on the value of their investments for interactivity.
- Managed by Professionals who have much knowledge in the field. They pick favourable investment opportunities through Market research.
- The complete portfolio disclosure of the investments made by various schemes along with the proportion invested in each asset type assures Transparency.
- In case of equity funds, they invest the money in companies across a wide spectrum of industries. In case of debt funds, they invest the money in bonds and other debt instruments across different maturity horizons. This diversify the risk and helps in taking advantage of the place it holds.
- Mutual funds are able to take advantage of their buying and selling size and thereby cut transaction costs for investors.
- In case of open-ended funds an investor can buy directly from the mutual funds. If an investor buys direct, she will get added returns of about 1% as no commission is given to the agents.
- An open ended fund units can be directly redeemed from the mutual fund as per the repurchase price announced every day hence they give high liquidity.
- Supports buying units for a fixed amount every month regularly (Systematic Investment Plan –SIP) which helps in rupee cost averaging and reducing the investment risk.
For guidance on starting a Mutual Fund, you may read the article Starting Mutual Fund Investments. Investment Planning is an extensive topic.Whatever the method is, it’s always good to seek professional advice from a Certified Financial Planner, before you invest your money.