We are sure by now you know the fundamentals of mutual funds. But why should you, as an investor, invest in them? For that matter, why should anyone invest in Mutual Funds?
Firstly, investing is not a joke. Everyone cannot invest wisely. You may be a millionaire but if you do not invest your hard earned money wisely it wouldn’t be long before you become a pauper! This is where Mutual Funds come into play. Mutual Funds allows investors to acquire the expertise of a professional qualified fund manager, who are, increasingly, attaining global degrees of CFA and MBA.
Secondly, going by the old saying ‘Don’t put all you eggs in one basket’, you are sure to yield profit if you diversify your investments. If you invest in only one kind, you are also exposed fully to the risks that come with it as a package deal. But, if you invest in at least two kinds of securities (if not more, though we would recommend you to diversify as much as possible), say real estate and gold, it is possible that in case one sector does not perform well, you can be quite assured of getting good returns from the other, for it very rarely happens that two sectors are simultaneously not performing well. So diversify if you want the best out of the market.
Thirdly, investing in debt funds costs lesser than what you would pay if you invest in equity funds as the latter charges you initially at 2.25% and then 1.5-2% of capital invested every year. Since mutual funds collect money from millions of investors, they achieve economies of scale because the cost is divided among numerically a larger group of people. Hence the low cost of asset management.
Fourthly, Mutual Funds being liquid investments, you can acquire your money anytime you want, unless it has a lock-in period. Also nowadays, due to the technology boom, mutual funds are so well integrated with the banks that money can be transferred to your bank account directly.
Fifthly, today, there is no hardcore paper work involved. All that you are to possess, if you wish to invest in mutual funds, are a bank account and PAN (required necessarily if your investment is more than Rs.50000/-).
Last, but not the least, thankfully, in India, the Securities and Exchange Board of India (SEBI) very well regulate Mutual Funds and the SEBI insists on transparency. The SEBI rules that the Mutual Funds has to declare at least half yearly its investment proceeds so that investors may know whether the fund is investing in line with its objective or not. At the moment, Mutual Funds declare monthly voluntarily.