Mutual Funds Demystified

Posted in Finance Articles, Total Reads: 2585 , Published on 16 June 2011
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Over the past few decades, the economic scenario has changed with countries prospering and growing consistently. In India, the investments made by people are evolving by the minute on a continuous basis. People have plenty of options like fixed deposits, bonds etc. But since they have relatively lesser returns, people turn their eye to the risky area of stocks. However, the one field, which has higher returns and yet considerably safe and is gaining tremendous momentum is Mutual Funds.

 

Mutual funds Demystified !

Mutual Funds is a process by which money invested by any person is pooled and spread across diverse investment opportunities. Companies are evaluated by their balance sheets, studied for their profits and losses etc by professionals. These professionals then actively manage the investments of the people and bring in higher returns.

 

In India, economic growth has propelled people into having larger surplus incomes. If money is not invested systematically, then over a period of time the money simply loses its value due to inflation. However, if proper investments are made which yield a higher return, then it can help individuals grow their wealth and be a source of achieving goals in the future.

 

Investing in mutual funds is outsourcing your funds to money management experts who invest the money in the capital markets based on objectives of schemes to generate higher returns. If Rs.1 lakh is invested for a period of 15 years at around 25% per annum, it would become around 40 lakh, i.e. 40 times in a period of 15 years.

 

Mutual funds also have a Systematic Investment Plan, where investments can be made in small amounts for a lesser time period. People don’t have too much objection in investing in smaller amounts, and thus a systematic investment yields great results.

 

Apart from investing in stocks, people can also consider investing in alternative bank deposits and post office schemes. Certain schemes invest in high quality debt instruments along with mix of equity, which result in higher returns as compared to bank fixed deposits.

 

Mutual funds offer transparency to the investors as they can constantly monitor where their funds are invested. This has to be done by the financial institutions as its safety is regulated by the government. Another advantage of mutual funds is that people can redeem their mutual funds units in case of emergency and liquid cash would be given to the investors.

 

With the advancements in technology, mutual fund transactions can be carried out by mobile, internet etc conveniently.

 

The mutual fund industry is also constantly evolving and growing, thereby giving investors more options in wealth creation for the future, secure investments and better money management. Diversification of investments for lesser risks by investing in different sectors helps in achieving the required objectives.

 

Mutual funds are however subject to the stock market fluctuations and thus are risky. But systematic understanding & study of markets and intelligent investments make the potential benefits in mutual funds more than the risks involved.


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