Why you need to invest in mutual funds
Benefits of investing in mutual funds
Why you need to invest in mutual funds
If you want higher returns combined with lowest risks, mutual fund is the answer. The money invested in mutual funds is invested in debt market, capital market and money market instruments like shares and debentures depending on the type of mutual fund. Mutual funds are a safe place for investing your hard earned money and it also provides a good return of atleast 20%-25% over a period of time as compared to the conventional National Savings Certificates (NSC) and Fixed Deposits that offer less than 10% returns. Systematic Investment Plans or SIP as they are commonly known as, are an excellent substitute for the Recurring Deposits (RD) of banks and post office. The value of your investments fluctuates depending on the stocks or bonds in which the fund has invested the money. The investment portfolio of the fund is extremely diverse and even if some of the investments don’t move in the upper direction, the other investments help in generating a reasonable yield.
Types of funds
You have several options to choose from. Some funds invest in only shares, while some invest only in bonds and debentures. The fund may even be investing only in shares that are listed in the stock exchange and form part of the index number of the stock exchange (SENSEX). You can choose growth oriented funds if you aim at capital appreciation through investment in shares with high growth potentials. Else, income-oriented funds will suit your needs of regular income in the form of high dividend payouts. Also, another classification is that of open-ended funds and close-ended funds. In case of open-ended funds, there is no fixed maturity period and you can easily purchase or sell the units at the Net Asset Value.
Meanwhile, close-ended funds have a fixed maturity period of 2 to 15 years and the fund cannot issue new units once it is closed.
Benefits of investing in Mutual funds
- You can easily transfer investments from one scheme to another with the help of updated market information.
- In case of open-ended funds, you can sell your units to the mutual funds directly at any point of time, while in case of close-ended funds, you can sell the units in the market.
- Different schemes to suit your needs
- Transparency is assured as NAV of the schemes are declared at regular intervals
- You stand to gain by the expert services of fund managers at very nominal cost.
- Offers tax shelters
- Diversification of investments decreases the risk of volatility in prices.
- Well regulated by SEBI and all functions are within the strict regulations designed to safeguard the interest of the investors.
Net Asset Value or NAV is Assets less liabilities of the fund as on a particular date. The NAV of a unit
is calculated as-
NAV of a unit = Net Asset Value of fund/ Number of units outstanding
The NAV fluctuates with the purchase or sale of investment securities, the value of the investments
held by the firm, the assets and liabilities of the fund and the number of units sold by the fund or redeemed.
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