Mutual Funds
A mutual fund is a vehicle which pools money from thousands of small investors and then the fund manager buys stocks, bonds or other securities with it. When you buy units of a mutual fund, you get a stake in all the companies in which the investments are made.
While investing in mutual funds it may be noted that the business affairs of a fund company is of minimal practical importance to investors. Investor’s do not normally have to bother about who the promoter of a fund company is or who the CEO is and who’s on the board of directors. The regulatory framework acts as a fire-wall, ensuring that any issues on the business side do not affect the investors.
Since most funds allow you to start a investing with as little as a few hundred rupees, you can attain a diversified portfolio for much less than you could buying individual stocks and bonds. Moreover, you do not have to worry about keeping track of dozens of holding across equity and debt instruments with a professional fund manager doing that job.
Mutual funds are safer than direct investment in the stock market but there is no guaranteed return.
No stock market related investments can guarantee capital protection. Mutual funds have an element of risk and volatility. They do not guarantee inflation protection, however, over the long term mutual fund investments are known to beat inflation and create wealth.
Almost all funds are highly liquid except for close-ended and tax planning funds. Redeemed amount will be credited to your bank account in 3-4 days.
Investing in mutual funds attracts income tax at the time of dividend payment in case of debt funds or when the units are redeemed with capital gains.
Benefits of investing in Mutual Fund:
- Access to professional managers who manage your investments
- Diversification: Mutual funds aim to reduce the volatility of returns through diversification by investing in a number of companies. This inherently minimizes risk. Thus with small sums an investor can achieve diversification which would otherwise not been possible.
- Liquidity: Investors can sell their holdings in mutual fund investments anytime without any hassles.
- Tax Efficiency: Investments in equity mutual funds for one year and above are tax-free. Investments in tax planning funds qualify for tax deduction and after the lock-in are tax-free.
- Low transaction costs
- Transparency: Price of units is declared daily and regular updates on the value of your investment are available.
- Well-regulated industry: All the mutual funds are registered with Securities Exchange Board of India (SEBI) and function under strict regulations.
- Convenience of small investments: A mutual fund permits risk diversification without an investor having to invest large sums of money. The minimum investment can be as low as Rs.500 per month.
- Invest systematically and regularly in mutual funds through SIPs to make the most of long-term investing and the power of equity.
- Build a portfolio of funds based on your risk profile to achieve financial goals.
- There are several strategies adopted by investors depending on their risk appetite, requirements and understanding of mutual funds.
- Choose SenSage as your Investment Advisor as mutual funds are subject to market risks.
