Let me ask you a question.
What are your top five wishes?
And I am sure, among these top five wishes, one of the wishes would be that you want to get rich and wealthy.
Isn’t it so.
Thus today a million dollar question to most of us is how we can get rich.
To become rich, the only parameter is the amount of income one can generate.
In this perspective, Mutual Funds prove a vital resource for generating handsome returns on the invested money.
In this post, you will get to know – Why Should You Invest in Mutual Funds?
For every one of us, a day gives you 24 hours.
So one way is to increase your labor, work more, increase your office hours or business efforts and you can become rich one day.
But in this process of becoming rich, one has to sacrifice his or her family life, and moreover one is not able to enjoy life. And of course this method though possible is not a practical solution at all.
The other way round is a smarter and practical solution.
You can increase your income by using your money.
In other words, you can make your money gain money for you.
That is increase money through money.
It is as easy as that.
But the problem is that most of us either don’t know this or don’t use this for becoming rich. Also, those who get into making money from money don’t have sound investment knowledge, and neither have they enough time to look after their investment bag intelligently.
So, at this point, comes the vital role of Mutual Fund which can help you earn money.
What is Mutual Fund?
If you look around for saving and growing your money and do not possess the market expertise, Mutual Fund firmly stands out from the crowd.
On one side you have the traditional mode of savings through “savings account” that give you such low interest which even does not match the inflation rate.
On the other extreme is the stock markets which though can give you high returns but also have the same level of risk associated with it as an investment in stocks requires almost constant market watch and fast response from the investor.
Here Mutual Fund can become your smart choice for optimizing your returns keeping the risks involved to a minimum.
How Does A Mutual Fund Work?
To understand why you should put your money in Mutual Funds, it is important for us to know the meaning of Mutual Fund.
Mutual Fund is a collective mode of kitty or reserve in which people put their money into a specific set of investment goals.
This money raising from the people is made by the Investment Company on behalf of the investors.
The fund collected from the investors is managed by a professionally qualified Fund Manager acting on behalf of the Investment Company, who uses this money to buy various stocks, securities, bonds and other market instruments by the predefined set objectives of investment.
The investors or shareholders are allocated units that represent your share in the total pool of the collected fund.
Mutual Funds are of different kinds. Some are specific industry or sector oriented, and others are diversified which stocks from a different set of companies dealing in various industrial sectors such as Debt Fund, blue chip companies, real estate companies, pharmacy companies, power, banking, IT and others as well.
Though the performance of the Mutual Fund depends upon the securities held by that Fund as a major portion of the money is put in the stock market, but as they are professionally managed by the Fund Manager, whose only task is to keep track of the market check Fund performance and take measures accordingly. So you can easily expect a good rate of return of around ten to fifteen percent on an average.
Also, chances of losses are minimal in Mutual Fund Investment as you buy stocks at different rates and have the liberty of selling or holding the stock.
As an investor, you have a wide variety of Funds to choose as per your need. You can also have the option of starting the investment in Mutual Fund with small minimum initial money.
In Mutual Fund you can invest basically in two ways.
Either you can go for a single sum of investment in which you purchase stocks once with a definite sum of money at a specific rate and hold them for a specific period which is usually more than a year.
Secondly, you can also go for Systematic Investment Plan in which you keep on purchasing stocks at different periods of time with a specific sum of money.
This sum need not be a large amount for you and can be according to your saving capabilities and future goals. That’s why it is called as a systematic investment plan.
Another important advantage which Mutual Fund Investment gives to the investors is its feature of high liquidity.
There is no mandatory locking period associated with investments. Whenever you need money, you can simply withdraw that number of units or that particular value from your accumulated fund.
Mutual Funds come with automatic reinvestment facility. The dividends which you may receive on your investments in Mutual Fund can be easily reinvested in your mutual fund which means greater returns with higher investment.
The Mutual Funds are associated with the greater level of trust as performance records of mutual fund companies are always audited for accuracy. So, the investors can trust the declared returns by the mutual funds.
Mutual Funds come with greater transactional ease with makes their overall monitoring much more conducive. You can very easily buy and sell shares, switch funds, obtain information and change distribution options.
The out and out advantage and beauty of Mutual Fund Investment is that it provides the facility to diversify your portfolio.
When you buy Mutual Fund, you get immediate access to some individual stocks and bond. Else if you buy individual stocks of different companies, you have to invest more, and in the process, you are exposed to high risk and volatility of these stocks on day to day basis.
Mutual Funds provide you to diversify with different options of funds to choose from such as Equity Fund, Growth Fund, Balanced Fund, Tax Saving Fund (ELSS), Money Market Fund, Bond Fund, Hedge Fund, etc.
Reasons Why Should You Invest In Mutual Funds
Now, as you have exposure to Mutual Funds, it would be easy for you to understand and appreciate the reasons to invest in mutual funds.
Here, we list out the reasons for investing in mutual funds:
Mutual Funds have an element of built-in diversification. It means that through Mutual Funds you get an opportunity to invest in various stocks. It is an observed behavior of the stock markets that not all stocks perform well at the same time.
Some may give you good returns while others can run you in losses. So, holding individual stocks is risky from an investment point of view. Mutual Funds spread the risk of investment as they go on to invest in various stocks at the same time.
Not all investors have the skills, knowledge and time for managing their investment portfolio. In Mutual Funds, your investments are managed by a professional Fund Manager who decides where to invest the money and when to buy or sell investments.
So, the responsibility of investment decisions lies on the fund manager. These Fund Managers are professional and skilled in the job of investing money. So, you can be assured of better decisions on the investment front.
Convenience – Mutual Funds can be bought and sold easily
Mutual Funds are easily available through banks, investment firms, trust companies, and credit unions. The fund units can be sold any time whenever you want to get access to your money.
Provides range of funds
Mutual Funds provide a range of options for every type of investor. For example, a young investor may invest in an equity fund. Likewise, a mid-career investor can choose balanced mutual funds with a mix of stocks and bonds.
Whereas, an investment approaching retirement can choose a fixed income investment option in the form of a bond fund.
When you save money in a bank, the inflation nibbles away the returns which do not match and override the rate of inflation. However, when you invest in mutual funds, the rate of return is higher than the rate of inflation thereby giving you better returns on your investment.
Mutual Funds come with the low cost of investment when compared with investment directly in capital markets. Young investors may not have the huge funds for investing in stock markets.
However, one can start investing in mutual funds with a small amount.
Potential for High Returns
Mutual Funds offer a diverse range of sectors for investing which have a potential for generating high returns on medium or long term basis.
Safety and Transparency
Mutual Funds are regulated in a disciplined manner. You get all the information pertaining the current value of the investment. Fund Managers provide detailed information about each and every aspect of a mutual fund.
Thus, with Mutual Fund you can smartly manage and grow your money. So no need to be an expert in the money market to harvest returns and make your money grow.
A judicious choice of suitable Mutual Fund according to your needs and aspirations can surely make you rich. So take the Mutual Fund advantage and start investing in a proficient and effective way. The reasons listed above will surely show you the path of becoming an intelligent investor.