CFA, Finance, Financial Products, FRM

What are Mutual Funds?

What are Mutual Funds?

Even a small organism like ant eat some part of food, and then keep a part for future. Similarly, we must also use of what we earn but also save a part of it for future. But what if this saved part lose value over the time, like 100 rupees saved today will not remain 100 after Two years, it will lose its value due to inflation effect. So, first step always will be to save a part, but then another step after that we will have to keep that in place where it can give you good return value over the time.

Now after saving money, you may think of alternatives where you can invest this money in different forms like savings account, postal accounts, gold, currency, shares or government securities. But money erodes easily in savings accounts, postal accounts, and the government security.

One can get a very high return in shares, gold and currency is proven by last 10 years data but one must have expertise to take this advantage.

 

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As a person busy in our daily works, we can’t give our time also to learn about this beneficial financial product. But we have a way out in form of mutual funds to avail this benefit.

Mutual fund to explain in straightforward term is like a box in which common public us put our savings, these savings are exercised by the mutual fund companies in investing them in shares, gold and currencies. They make benefit from it and avail good percentage of this benefit to investors. They by this way reduce risk, they diversify and divide the chances of loss.

Also, if you directly invest in share markets, you need keep a tab on shares daily for many hours and you also need to be aware of news. If you are busy in some works, already, you can’t give your precious time to these things.

Even if you decide to invest in share, you can’t buy highly cost shares of your whole investment will run into 1-2 shares only. Also, you need expert advice at times, but they are very costly.

But with mutual funds, you can give your time to your works and invest indirectly, your mutual fund gives you benefit of investing even in highly cost share and usually, mutual fund companies to take experts’ advice in their operations, indirectly so, you get that benefit also.

 

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You may get in doubt that your savings are small so, you may not be able to get into mutual fund, but it is not like that, even with small investment one can invest in mutual fund.

Also, Mutual fund has transparency, they are easy to understand, and they even get endorsed by government. You might have seen advertisement where government advises you to go for mutual fund by popular slogan “Sahi hai”

Statistics also favour Mutual fund over any other investment object. Over last five-year comparison,10-22% return is available in mutual fund against 5-24% return of gold. But there is much variability in prices of gold, and they cannot be favoured over mutual fund anyway. There is high gap between earnings with gold and there is high fragility in this, so bottom line for you is also that instead of putting money in home ornaments, investing them in mutual funds will be more beneficial.

 

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So, until now, you might have made your mind to invest in mutual funds but let me list down once again benefits.

  • Even with small investment, entry in mutual fund is possible.
  • Diversification of money in different sector by mutual fund reduces risk
  • Time is saved and expert advice is availed indirectly
  • There is high return with mutual fund, and they give a good value over the time.
  • Even Costlier share can be brought indirectly under mutual fund
  • Mutual fund is supported even by government.
  • Mutual fund is easy to understand and also transparent.

Thus, this are some of reason to go for mutual fund and there can be even many more to add to this list ahead.

Author: Akash Bavishi

About the Author: Currently pursuing his masters from FMS, Baroda. Akash has deep interest in finance domain thus he has taken up content writing to explain various financial concepts in words which could be understood by all.

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