Mutual funds have gained quite popularity as an investment alternative amongst millennials for last two decades. If you ask about Gen Z who are more tech savvy, they would hardly advocate about putting their hard earned money into traditional means of saving. So what are mutual funds and how one can invest into it, we will know about in this post.
What are Mutual Funds?
Mutual funds are a pool of investments wherein individual having common financial goals come together and invest their monies which is professurially managed by the learned and experienced fund manages. This pool of money is further invested into shares and securities of various companies as per the objectives of the fund. The company accepting such investment is known as Asset Management Company. In India, there are total 44 such companies.
Each company has its own fund managers & research team who have designed various different funds having different objectives. For example a fund objectives can be capital appreciation and long term growth which means one should invest in that fund only when he/she seeks long term growth and profiability from the investments. Similarly, people looking for continous income should invest in a fund whose objective is to provide regular income.
Why You Should Invest In Mutual Funds ?
So why have these funds emerged as a better solution for parking one’s money rather than Bank’s saving account on fixed deposits? The answer lies in returns of these investment options. We have seen a declining rate of Interest becoming a pattern when it comes to investing in Banks. The saving interest rates is ranges between 2.70% to 6.25% pa whereas FDs ranges from 4% to 7.5% p.a.
These rate of returns are even not enough to beat inflation which was recorded as 6.62% in 2020 for India whereas if we talk about mutual funds they give you good returns ranging from 10% to 22% ( given that the fund was period for the time it needed to grow). Hence it is but obvious why it has gain popularity.
Are Mutual Funds Safe?
However given the fact that the returns are higher in mutual funds, one can’t deny that these funds attract several risks. Market Risk is one of those risks because ultimately the funds are invested in markets. Hence, as per the performance of the markets, then funds seek returns whereas in bank deposits the returns are quite safe because the Banks are always backed by RBI. In mutual funds also the governance is played by SEBI which plays a critical role in ensuring the transparency & integrity of the Asset Management Companies. So by doing proper research one can invest in mutual funds.
Past perfomances, fundamental attributes, expense to risks but some parameters which can be looked upon while investing. This information is also available in the funds factsheets which is monthly issued and published by the AMC.
How To Invest In Mutual Funds?
So how can we invest in mutual funds? Well one can start with as small as 500 Rupees. It’s very easy. There are too many platforms available online who provide research and investment facilities at a very nominal cost. Or one can also visit on AMCs official website. All you need is an identity proof, address proof and a Bank account in your name and you are ready to go. You can also visit these fund houses in your nearest locations. Trust me, people there are really helpful.
So I shall be back with some more investing topics over investment for the ones who are new to this investments world, till then do comment and tell me how you like this post.