There is no doubt that we are living in a world that is enveloped with uncertainty and risks.
The ever-changing market fluctuations have posed significant challenges for people with fewer funds but an eagerness to enhance their wealth. This is when mutual funds come into the picture and cover people who either lack market knowledge or are sceptical about investing in high-risk markets.
In layman’s terms, a mutual fund is a pool of investments under a Fund Manager’s control. It is a type of investment wherein various investors pool their resources, and the manager invests the same in capital assets to complement their common objective.
The resources combined in the form of holdings are known as a portfolio. The investors share the income or gain generated proportionately after deducting the requisite fees.
Is it a smart move?
Needless to say, there are various investment options.
From real estate, bonds, and stocks to mutual funds, choosing the right choice is daunting, especially for a layman.
Investing isn’t gambling; to yield a rewarding ROI, you must have proper knowledge and strategy. Thus, a more prudent option for you would be to partner with a mutual fund. They help you build your wealth and take crucial investing decisions on your behalf.
In case you are planning to invest in mutual funds, here are the reason why you’re making a smart move –
1) Diversification of risks –
Each stock is subject to systematic and unsystematic risks like-
- Company risk
- Market risk
- Sector risk
Mutual Funds enable the diversification of the unsystematic risks by investing in diverse stocks across various sectors. This means that you can spread your holdings across multiple industries, companies, or investment vehicles. Thus, unlike stocks, x are only subject to market or systematic risks making them a much safer investment option.
2) Minimal Expertise –
You need financial literacy, industry and market knowledge, trends and research expertise to invest in bonds and stocks. On the other hand, investing in Mutual Funds means leaving your investment in the hands of experts with adequate experience, expertise and knowledge to
understand the risk and get you the best returns.
3) Low investment –
Mutual funds work on the concept of money pooling. This allows you to start investing in them with a comparatively lower capital outlay than what is required for stocks. Mutual funds investors can have a diversified portfolio with just INR 500 to invest in ELSS online and INR 5000 for equity mutual funds.
4) Flexibility –
There are various types of mutual funds and one of the major advantages isthe flexibility that is offered to investors for investments and withdrawals.
As an investor, you can choose a mode that is most suitable for your needs like –
- Lumpsum
- Systematic Investment Plans (SIP)
- Systematic Transfer Plans (STP)
- Systematic Withdrawal Plans (SWP)
You can calculate the estimated returns on your mutual fund investment by using our SIP calculator.
Conclusion
Mutual funds are usually characterized by risk diversification, return potential, flexibility and accessibility, but every investment comes with a risk factor. They are subject to fluctuating returns, minimal control of the investor, and even mismanagement by the managers as well.
However, they are amongst the most sort after investment options for retail investors and give you the flexibility of diversifying your portfolio as per your risk appetite. Thus, investing is indeed a smart move.
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