Earlier, people used to believe that the steady rise in savings was the only way to secure the future. Today this thinking has changed significantly. People these days do not believe in keeping their earnings idle. Instead, they look for other opportunities to invest and grow their money. When it comes to finding an ideal investment opportunity, the first difficulty a potential investor faces is an excess of options. There are a number of options to select from like shares, bonds, mutual funds, and other market securities. Moreover, every option has its own set of benefits and drawbacks.
However, investing in a mutual fund instead of individual stocks or bonds can reduce the level of risk to a greater extent. Nevertheless, the main question is why should an investor think about investing in a mutual fund and how could it reduce the amount of risk involved.
Let us start with:
In this article
- What Is A Mutual Fund?
- Is it Safe to Invest in Mutual Funds?
What Is A Mutual Fund?
A mutual fund accumulates money from investors or financiers and invests that money in shares, bonds, and money market securities on the behalf of the investors. The mutual fund investment companies take a small payment for investing and managing the money. A mutual fund is a great investment tool for long term investors who do not know much about how the stock markets work. Investors can browse through various mutual fund schemes offered by various mutual fund investment firms and choose one according to their objective, risk appetite, and requirements.
Is it Safe to Invest in Mutual Funds?
You can worry about the types of mutual fund investments later on. What’s important is to understand why mutual investment can be a better and a safer option as compared to the other investment vehicles. There are several reasons to invest in a mutual fund. Given below are the few reasons why it is safe to invest in Mutual Funds:
1. Investment Diversification
The focus point of the mutual fund is that you can invest in several kinds of stocks at once. Mutual funds diversify your investment, making it possible for you to invest in different securities, instead of obtaining the individual securities separately. Through diversification, mutual fund reduces the amount of risk involved in the stock market investment. By investing in several securities, if one security gives you loss, you can recover the loss through other securities.
2. Managed By Professionally Qualified Managers
Several investors do not have time to conduct research and analysis on different market securities as this can be quite a time-consuming process. Other than that, many people don’t understand how the market works and other technicalities. That is where mutual fund managers can help you immensely. They are qualified and certified professionals who have in-depth knowledge of how the market works. They are therefore much better positioned to invest in the right investments.
3. Can Start Investment With A Very Small Amount
Several mutual fund investment companies allow their clients to start the investment with a very small amount. Hence, you do not need a huge amount of money to start investing in the mutual funds market. Even an amount which is as little as ₹500 can make you a mutual fund investor.
4. Organized And Efficient Investment And Easy Withdrawals
Investing in a mutual fund is a very easy procedure. Lots of mutual fund companies have an organized and systematic structure to invest in the mutual funds. As an investor, you won’t have to do anything except investing a certain amount every month. Other than that, you can withdraw the money directly from a mutual fund.
5. Mutual Funds Systematic Investment Plan (SIP)
Most of the mutual fund companies offer a systematic investment plan. In this, a fixed amount is automatically deducted from the investor’s account on monthly basis. This amount is invested in the mutual fund the investor has chosen for investment. An investor can easily choose the option of reinvestment. That way he or she allows their mutual fund company to reinvest their returns on investment or dividends back into their mutual fund. Such mutual funds are called growth mutual funds.
6. Authentic and Transparent Mutual Fund Investment
The whole mutual fund investment procedure is clear and concise. Mutual fund holdings data is openly available in the markets for everyone to see and analyse. Therefore, the investors can keep an eye on the performance of the mutual fund and ensure they are getting what they should. A mutual fund investment company also keeps the record of the performance of each mutual fund and gets them checked and audited by the professionals so that investors know that their investment returns are accurate and no fraudulence is involved. You can get to know everything you want to know about a mutual fund through the official website of the mutual fund investment company.
7. Liquidity and Flexibility
A mutual fund investment offers both liquidity and flexibility. You can withdraw the money from your mutual fund investment whenever you want. In addition, you can sell your mutual fund portfolio and can get sale proceeds in just two or three days after the transaction takes place. Therefore, you need not worry about your money being trapped in the investment for a longer period of time. You can convert your investment into money whenever you need it.
8. Convenient Investment
Mutual Funds are quite easy to understand. Moreover, you can get a mutual fund that is suitable to your requirements, depending on the amount you are willing to invest andthe amount of risk you are willing to take.
Ever since mutual funds came into existence, they have been widely held amongst the investors. The convenience and flexibility associated with mutual funds make them a lucrative deal for new investors.
However, like any other investments, Mutual Funds investments are dependent on market risks and there is no guarantee the goals of the mutual fund plans will be accomplished. So before you make any decision regarding investing in any mutual fund scheme, look for a professional advice, validate the content, terms, and conditions of the scheme to make a well-informed investment decision.