Welcome To The World Of Mutual Funds

By Author: Vamsi Krishna
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Why your decision to invest in Mutual Funds is one of your best financial decisions?

Mutual funds are one of the most preferred routes for most investors who want to participate in the capital markets. And, it has been growing in popularity, especially over the last two decades. Probably, one of the reasons you have landed on this page.

Before we understand the usefulness of mutual funds as an investment, let us quickly understand the definition of the term “Mutual Fund”.

Mutual Fund has been defined as a fund operated by an investment company which raises money from individuals and invests in a group of assets, in accordance with a stated set of objectives.

Does this definition sound too complex to accept all at once? Let us make things lot simpler, taking a step at a time…

• A mutual fund is a collection of funds from various small and large investors.

• Every fund is created with a certain investment objective and seeks investors who are agreeable with these objectives and are willing to invest varying sums of money into the fund and gain ...
... returns against their investment.

• The fund can be invested in various financial instruments like equity shares, bonds and other fixed income securities, and other similar assets; whichever instrument broadly suits the investment theme and objective.

• Investors prefer the mutual fund route to investments since it allows their funds to grow under the watchful eye of the fund manager.

• The mutual fund is managed by a fund manager who buys and sells securities for the most effective growth of the fund and keeps transaction expenses in check.

Now that you understand the concept of a mutual fund let us look further as to why it makes sense:

A Steady Investment

If you are looking at entertainment then you might as well look at popular casinos.
If you want the excitement of the constant ups and downs of the stock market movements, equity markets are great. But if you are looking at steady accumulation of real money for your retirement, you will hardly go wrong with a good mutual fund.

Expertise of a fund manager

Most individual investors don't have the ability and time to monitor every holding and analyse performance the way a professional fund manager does every day. This is where experts like fund managers come in handy.

Diversification

Mutual funds, as a concept, are based on the premise that the funds will be invested in different avenues. A mutual fund investment tends to lower your risk as your investment is spread across various sectors of the economy.

Regulated

Mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI). SEBI forces transparency on the mutual funds, which helps the investor make an informed choice. Most mutual funds voluntarily disclose their portfolio holdings and transactions once every month or quarter.

Liquidity

The liquidity factor makes mutual funds a very attractive option over other illiquid assets such as real estate and some form of debt securities. The investor can redeem or subscribe to mutual fund schemes anytime.

Mutual funds are one of the better alternatives for investments, a step in the right direction. Remember to do your research and select a mutual fund that fits the level of risk you are willing to take with your hard-earned cash and your financial goals.

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Author Bio

Ritish Kumar is a finance enthusiast and a keen observer of the Indian share market. In this series of articles, he talks about investing in stock market and staying profitable. Mutual Funds