All of us have the habit of saving money, but not all know what to do with their savings. We all want to derive the maximum benefit from our savings but are clueless as to how to go about it. The traditional investment options like fixed deposits, insurance policies, savings certificates are pretty much well known. But then, are these really the best options? With inflation hitting the roof, investment has become a need rather than a want. If your money does not grow with time, then how will you manage to achieve your financial goals in the future? Your dreams of buying a house, buying a car, going on that vacation abroad, or planning a peaceful retired life will continue to remain just dreams. So, how do you make your dream a reality?
Surely, you’ve heard this term “mutual fund” many times, whether your reading a financial newspaper or watching a business television show or visiting a financial website. Mutual Funds might seem a complicated option in terms of investment. People usually believe that they will have to read long documents, keep up with the stock market, fill out a lot of forms etc. But, do you really know what is a mutual fund? Allow us to explain.
A mutual fund is an investment vehicle that collects money from individuals and invests in a diversified portfolio of investment assets like equities, bonds, debt instruments etc. An investor in a mutual fund is a unit holder who buys units in the fund. Each unit represents a proportion of the ownership in all the investments owned by the mutual fund. So, who all should invest in mutual funds?
There are many advantages of investing your money in mutual funds.
Mutual Funds offer easy encashment of your investment, which means you can get access to your money easily and at a short notice. You should bear in mind that the best results in mutual funds are mostly achieved by maintaining your investment over a medium to long term period. The fund house charges a nominal fee for managing and growing your money.
In mutual funds, your investments get diversified. Even though the stock market has its ups and downs, diversification reduces the risk factor associated with investments. This is done by investing in stocks of multiple industries and the best performing companies in each business category. Mutual funds and the companies managing them are regulated by government investment authorities which regularly monitor the fund houses.
The misconception that only people with a lot of money can invest in mutual funds is incorrect. You can invest in mutual funds for as low as Rs.500. No matter how much you’re willing to invest or what your risk appetite is, there is always a mutual fund scheme available for you. You can invest in money market funds which are potentially steady but offer low returns, which is ideal for your long-term goals. You can also invest in high risk products with potentially high returns for achieving your short-term goals. You can also invest in equity funds where you have a wide range of investment choices. For enjoying a peaceful retired life, there are pension fund schemes where you can park your money. Investing your unspent income in the right place is the stepping stone for achieving your financial goals. So, plan your short-term and long-term goals and accordingly start investing in mutual funds.