Mutual funds is a commonly known term. Investor awareness has grown considerably over the past few years. While the average retail investor has known mutual funds for more than two decades, but it is only now that many of them are increasingly realizing the benefits and the potential of these highly customized customer-suited investment plans.
Mutual funds are created and run by large asset management companies (AMCs), that formulate a ‘cluster’ of different debentures, bonds and even high-risk securities to suit their stakeholders.
One of the most significant aspects is that mutual funds have the ability to serve each stakeholder specifically. AMC shave come up with different permutations and combinations of consolidated funds to serve each investor with the right amount of risk-factor, compounded interest and liquidity that they are looking for. Each AMC has hundreds, (if not thousands) of different mutual funds to invest in. Let’s look at how the sheer variety of different kinds of mutual funds available to suite investors needs:
#1 They’re highly liquid investments
If you’re a person who is barely able to make your ends meet, Liquid Funds can help you set aside small amount of money every month to save for your financial contingencies. Liquid funds have very low-risk, so you can safely store aside some money for later use.
#2 They Help Plan Long Term Goals
Mutual funds come in all sorts of varieties – helping you plan for your long term goals – whether it’s a vacation or a vehicle purchase. Some mutual fund houses even offer Retirement Funds for middle-class working individuals, for a financial backup after retirement. Retirement plans require financial advisors and distributors to act as fiduciaries; this means that pushing funds for personal benefits is prohibited for advisors. These plans are regulated by the government in order to maximize gains for a person who is creating a retirement fund. [SBI Mutual Fund currently offers an array of retirement plan funds which we found to be extremely well put together]
#3 Systematic Investment Plans Make them Accessible
People who have little money to spare every month aren’t cut off from mutual funds investments. SIPs (Systematic Investment Plans) are created to slowly accommodate wealth over years without investing a lump sum amount of capital on investments. A person can start investing in SIPs for as low as ₹500.This really expands the accessibility of this market towards millions who are unable to dispense a huge amount at once to invest.
#4 Equity Mutual Funds Deliver Higher Returns
People willing to take higher amount of risk have an option to aim for large gains in a short amount of time by investing in equity mutual funds. Equity funds are higher-risk funds, with a higher percentage of securities assets, and a low percentage of bonds to ensure protection of initial investment value, while keeping the window open for short-term gains and surges in value.
#5 They are Compatible with Varying Requirements
There’s a mutual fund for everyone and anyone. Take Balanced funds, which seek to converge lower risk and higher gains. Balanced Funds combine equal proportions of debt funds, bonds, and securities to consolidate a fund that grows exponentially over the years, without risking huge losses due to a drop in values in the securities market. The bonds and debt fund minimize loss, while also minimizing liquidity. Balanced Funds are mostly long-term investments.
#6 Direct Mutual Funds Sahi Hai
Compound interest is a magical concept. However, the same compounded interest that helps you make sizeable gains on your initial investment can also take a huge cut from your gains. Commission or fees for your financial advisor or consultant is also subject to the magic of compounded interest, which can soar over a period of a decade or two. Considering that most of us need an advisor to invest in mutual funds, it is advisable to get the necessary consultation needed. But direct funds allow you to make investment decisions yourself and eliminate the need to be paying nearly 1% as commission/fees on your returns. This is instead added to your gains – which add up to the significant amount over the long run.
Retirement planning, saving for your child’s education, or even setting aside enough money for a trip to Europe for next Christmas; mutual funds have an option to help you achieve each of these goals. Be it for short term liquidity, or long term gains, mutual funds can help every investor. They can assist you with short term gains, as well as show the magic of compounded interest for 10 to 20 years down the line. Can’t really deny then, that mutual funds sahi hai.