Market-related investments are known for their risky nature, but for mutual funds, the reverse is true.
Mutual Funds are less risky, offer better return rates and wealth appreciation which otherwise isn’t available with any of the fixed deposits, or saving schemes offered by the banks.
To enlighten investors about the potential gains from mutual funds, AMFI, Association of Mutual Funds In India, introduced a very prominent campaign called ‘Mutual Funds Sahi Hai’ through there website mutualfundssahihai.com
The ‘Mutual Funds Sahi Hai’ aims to spread awareness to people by helping them understand how to invest, where to invest, and what the most optimal method for getting good returns is.
Mutual Funds Sahi Hai because they set you free from financial woes in the worst of days or at retirement.
Unlike investments in equities, mutual funds do not keep money invested in low-performing assets, or any other similar securities.
This work is from the managers who are handling the funds. They ensure that the fund is keeping up with the reputation and there’s a good amount of assets under management or AUM.
Note: The path now followed will contain a lot of terms, please consider glancing at this article first.
In this article
Mutual Funds Sahi Hai, Par Kyu?
What we discussed so far isn’t attached with any of the facts or realities that would make mutual funds claim the throne in the capital market realm.
Our aim is to help our investor friends understand the concept of investment in mutual funds.
Just like AMFI, we share the same vision of making people aware of mutual funds, so they can get the best out of their savings instead of keeping in fixed deposits or letting the money stay in the banks.
By distributing the entire explanation into different segments and points, we will try to reach a point where everything said makes ground convincing enough for you to start investing.
Mutual Funds Sahi Hai, Chinta Nahi Hai:
A lot of us, before taking the very first step towards the capital market realm and investment take a step back due to the volatile nature of stock markets.
By doing this, we often cloud our judgment from making the right move. It’s true that by directly purchasing an equity, you increase your chances of both losing and gaining a significant amount of hard earned money.
This fear of loss forces you to ignore other possible investment types, out of which one of them is mutual funds.
Once you choose a mutual fund and start investing in it, fund managers will make sure that your money is in right securities and there are no under performers impacting the returns.
It all comes down to the fund’s name, the top holding it has, and the total number assets under the management.
Considering yet another situation where you might not feel safe giving your life savings to a fund, then let me tell you Government of India governs everything and law ultimately protect you without any loose ends.
Above all these points, one thing which affects most of us is the market-related risk factors. Before I explain this let me put a few points across about mutual funds categorization.
Mutual funds have categories such as balanced, equity, debt, hybrid, and more. The categorization helps an investor quickly understand the nature of a fund and the type of risk it has.
The risk is always higher in balanced and equity oriented funds as they are directly linked to the market and often invest significantly in the equities only.
However, they do keep a part reserved for debt and cash equivalent investment in case things don’t go as expected.
Just after making your very first investment, there are high chances that you might experience a slight loss – considering the current market conditions – however, mutual funds, unlike intraday investments, are all about the long term and continuous investments.
It’s best to invest your money in mutual funds and not touch it till your goal is complete.
Hope this section helps in clarifying your doubts regarding the market and mutual fund investments. Let’s jump to another section.
Mutual Funds Sahi Hai For Building Wealth:
Mutual funds are best known for building wealth with a long term investment.
You can either look forward to creating retirement savings or make goals as per the need, say child’s education, world tour and what not. Based on your goal and tenures, funds receive the investment.
Now, there are two ways by which you can make the investments and buy units; lump sum or by creating SIP.
A lump sum is a form of investment where a massive money flows into a mutual fund.
Assuming you have some liquid in your bank account which isn’t getting appreciating much and getting affected by inflation, putting that money in mutual funds for even one year can help you attain good returns without any worries.
Assuming market remains standard, an average return of 22 percent can be obtained from equity funds. This percentage starts reducing as we start moving away from completely stock-oriented funds.
For example, investment in debt funds will provide returns of approximately 9 to 10 percent, but the risk would be much lesser compared to the previous case.
Moving further, Systematic Investment Plans or SIPs is about making small investments into the mutual funds once every month, quarter, or year. An investor can set up a frequency as per the cash flow.
However, most investors tend to go on a monthly basis as it’s more feasible and easy to maintain.
In the both the cases you can set up a goal and start investing till you reach your goal.
Mutual funds investment are is much better than the fixed deposits, as funds provide better returns, flexible investment, redemption and much more. We have written a complete in-depth article explaining the difference between the two; we suggest you read it here.
Mutual Funds Sahi Hai for Tax Saving:
Tax saving is something that worries almost everyone in this country, and finding ways to do that is much more complicated.
Thanks to the today’s digital world and availability of mutual funds tailored specifically for saving the taxes, under Section 80C Income Tax Law, an individual can save up to 1.5 Lakhs on investments per year by putting money in mutual funds.
Whether you are a salaried person or business person, by investing in mutual funds through SIP or lump sum you can save taxes without working too hard for it.
What about the returns you will gain with your investment? Luckily, there’s very minimum or no taxes applicable on returns if the money is kept invested for more than one or three years. The tenure is dependent on the scheme you invest your money.
Also, as mentioned, these funds are managed by the managers, and they need to pay salaries to people working under them. Fund managers charge a small fee – around one percent – to keep the engines oiled and running.
These fees are known as entry, exit loads and few others. Depending on the type of fund you are investing into, these are applied during a purchase or redemption. However, most funds do not apply loads if an investor is redeeming money after one year.
Mutual Funds Sahi Hai Because they are Easy to Sell And Buy:
Compared to other investment instruments, mutual funds are straightforward to buy and sell. Earlier, phone calls were the only way to invest and redeem the money from mutual funds, and it required a lot of manual intervention.
However, with the current technological advancements, investments in mutual funds is as simple as ordering pizza or making an online order from any of the shopping websites you see today. Everything is within reach of few taps or clicks on the screen.
Mutual funds investments these days are comfortable, secure and compared to previous days, orders can be placed at any hour. However, unit allocation might take a day or two as it takes time to confirm the payments due to the involvement of different institutes such BSE, AMFI etc.
Talking about the platform itself, The other day we received requests through Quora, asking whether investments through Groww are safe or not.
Groww is a free platform that allows an investor to quickly look at the available investment options and also at the dashboard displaying details of the investments that have been made so far. The platform is well built, secure and very easy to use.
Unlike some other available platforms, Groww redirects all the transactions towards BSE Star page where the transaction is authorized and confirmed back to the platform. This way we ensure that all the transactions are safe and tamper-proof.
Selling is also really simple. On your dashboard, you can just click on the redeem and enter the amount to proceed. Once confirmed, your money will be credited to your source bank account in not more than seven working days. Check out this video how one can redeem mutual fund investments easily.
Mutual Funds and Inflation:
Investments in mutual funds can help you maintain the same worth of your investment without any effect of inflation. It’s better than keeping money in the banks and earn a little interest on it.
For example, consider you have a thousand rupees in your bank account and interest on that as per the standard would be close to ₹50. The total amount comes to be about ₹1050.
However, the prices of items have also increased due to inflation and the returns have no effect whatsoever. In the case of mutual funds, investments do not lose the value.
Mutual Funds are Diversified:
Earlier we talked about balanced, equity, debt and few other categories of mutual funds. Based on the class they belong, mutual funds allocate their investment in different types of classes.
Considering an example of a balanced fund, managers put half of the investment to the equities and remaining to the cash and debt investments.
Capitals are known for wealth appreciation and debt and money for stability. Equities create wealth appreciation, where cash equivalents make sure funds are stable.
Not only this, even in the equity and debt allocation, the investment isn’t allocated to one particular company or sector, but to many top performing securities in the market.
If we look at any of the funds, under the top holdings section, you can see the list of securities and companies along with the allocation percentage.
This way managers ensure investments are safe, as even if one holding starts to degrade it can be covered up by other investments.
However, even this has an exception as under conditions where the entire market is falling down, then no matter what type of allocation you have the net asset value decreases.
These are much better than directly investing in the equities as the money is allocated to different sectors and securities and only among the top-performing stocks or debt funds on the market.
It is probably one of the biggest advantages of investing in mutual funds.
Mutual funds are safe, they are relatively easy to invest, you do not have to pay much of attention to their performance, and you can save taxes on it.
Mutual funds are managed by experts who know the ins and outs of the market and make sure that the money is well invested without any of those woes.
Mutual funds are diversified to help attain best possible returns depending on the long or the short terms goals and also the amount of money.
Investing your liquid asset in mutual funds helps you grow your wealth, build up savings and also the money to easily handle some of the most crucial life events.
Long-term investments or SIPs make you financially free, which in my opinion, no other market instrument is capable of doing.
It’s about how easily and quickly you can start building your wealth without focusing much on how the markets are behaving, which stocks are most profitable and what not.
Also, if we compare these to fixed deposits, they again take the spot by providing funds which only invest in debt and cash equivalents. The interest rates are higher than FDs but with the same sense of security.
Disclaimer: The views expressed in this article are that of the author and may not be same as that of Groww.