Mutual Funds An Investment Tool For Masses

A mutual fund is an investment vehicle that holds different asset classes. Basically when you invest in a mutual fund scheme, you’re contributing to a big pile of money to buy an asset, such as stocks, bonds, gold, etc., which need to be in line with the scheme’s investment mandate.

The various names of the funds help to broadly categorize themselves, which also allows the investor to have a general picture of the product. So, when you hear “XYZ Small-cap Fund,” your mind has already pictured a mutual fund belonging to XYZ, which invests majorly in small-cap stocks.

Globally, mutual funds have established themselves as the means of investment for retail investors. Some of the benefits are mentioned below:

• Professional Management: Investing in stocks requires a lot of experience and skills, which are not readily available to an individual investor. Investors have lost major capital when they invested without knowing where to invest. However, mutual funds are managed by professional managers who have the required set of skills and expertise to make possible an organized investment strategy.
• Risk Diversification: Every stock is subject to three types of risks - company risks, sector risks and market risks. Company risks and sector risks are unsystematic risks, while a market risk is known as a systematic risk. Mutual funds invest in a number of companies across various industries and sectors. This allows the mutual fund to diversify the unsystematic risk within the portfolio.
• Liquidity: Mutual funds are mainly classified as liquid investments as a majority of mutual funds have no lock-in structure. The funds are also well-integrated within the banking system, thus allowing the funds to directly transfer the amount to the investor’s bank account.
• Flexibility: There are several types of mutual funds available in India that cater to investors from all walks of life. Various types of mutual funds, either individually or in combination, help investors to achieve their financial goals according to their risk capacity.
• Transparency: Mutual funds transparently declare their portfolios every month. Thus, an investor knows where his/her money is being deployed. Alongside a monthly declaration of portfolios, several ratings agencies and industry publications track and record their performance, thus giving the investor a sense of conviction.
• Cost: Mutual funds are one of the best investment options considering the costs involved. If you hire a portfolio management service, you’ll typically be charged 2% to 3% of the total investment per year. They will also deduct a share from your profit. Mutual funds are relatively cheaper and deduct only 1% to 2% of the expense ratio. Debt mutual funds usually deduct even lesser.
• Rupee Cost Averaging: Mutual Funds as an investment vehicle have an option to invest an amount on a fixed period. This allows you to purchase more units when the NAV is low and as a result the average price reduces. This approach also encourages investors to follow a disciplined approach to investing rather than making hasty decision in a volatile market.
• Regulatory Framework: All mutual fund houses are registered with the Securities and Exchange Board of India (SEBI). Furthermore, they must follow and adhere to strict regulatory guidelines and rules that are provided for investor protection. The SEBI regularly monitors the various mutual funds, thus ensuring that your investments are safe.

The Investors shall invest only on the basis of information contained in the draft prospectus/KIM’

“The information, analysis and estimates contained herein are based on NBWS Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents NBWS Research opinion and is meant for general information only. NBWS Research, its directors, officers or employees shall not in any way be responsible for the contents stated herein. NBWS Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. NBWS Research, its affiliates and their employees may from time to time hold units of mutual funds referred to herein. This report does not support to be an offer for purchase of this bond issue.”

“Mutual Fund Investments are subject to market risk. Please read the offer document carefully before Investing.”