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14
Sep,18

Investing in Mutual Funds

Invest in Mutual Funds

A Mutual Fund is a professionally managed investment fund that pools money from many investors to purchase securities. Mutual funds are managed by professional investors and they provide liquidity, economies of scale and a higher level of diversification. Primary structures of mutual funds include closed-end funds, unit investment trusts and open-end funds. Exchange-Traded Funds (ETFs) are open end funds or unit investment trusts that trade on an exchange. Mutual funds are normally classified by their principal investments, as described in the prospectus and investment objective.

Mutual fund investments have emerged as probably among the most preferred investment avenues in India during recent years. If chosen wisely, some funds have the capability to multiply your wealth in the long term. However, selecting the best performing mutual fund to suit your individual requirements becomes difficult because of the availability of a large number of schemes in the market.

Mutual fund investment has been riddled with various opinions, myths and perceptions and investors have sometimes lost money due to this confusion.

Therefore, instead of just following mutual fund investment tips given by your friends and relatives, or acting upon hearsay or mere opinions, you need to check some basic things before investing in a mutual fund. The following points would assist you in selecting the most appropriate fund for your specific requirements:-

1. Give preference to mutual funds which have been in existence for a reasonable period of time, and there is a history to fall back upon to check for the historical performance of the fund.

2. Check the fund manager’s history in detail. A fund manager with expertise in finance and ethical history would be an ideal candidate.

3. Check the risk profile of the fund and ascertain that it matches your risk appetite or risk tolerance level

4. Higher AUM gives more liberty to the fund manger to take decisions during tough times, although there is no link of asset size with future returns/performance, but it does apparently boost the investing sentiment of the investor.

5. Investment allocation to Debt and Equity covers risk, but again low risk will give low returns and vice-versa.

6. Past performance of the fund is important in analyzing a mutual fund and what you should be looking for is the fund’s performance across different economic cycles or phases. Look for consistency of the fund rather than just the rankings.

7. It is imperative that you invest in a fund with a low entry & exit load so that your overall returns are not impacted. An entry load is the charge put on you at the time of joining the fund and exit load is the charge levied when you sell your units of a mutual fund within a particular tenure.

8. It is important that you inquire regarding the tax liability arising from a particular scheme, before you plan to invest your money in it. It should be tax-efficient, so that the taxes do not eat in your overall returns

The question of investing in mutual funds can come up at any stage in your life. Some people may consider investing in mutual funds when they are in college, others may think about such investments when they are maybe just a few years away from retirement.Following are a few good reasons why you must invest in mutual funds from an early age:

  • If you want your money to beat inflation, then you need to invest it in suitable instruments which have a likelihood of generating returns higher than the prevailing inflation rates. Investing in mutual funds converts your savings into growth assets which appreciate at a real rate.
  • Fund managers are well-versed in the fine art of investing and are professionals in this field. They manage the mutual funds on a full-time basis. It is therefore better to let the fund managers manage your money instead of taking ill-informed decisions on your own.
  • Mutual funds help you to diversify your portfolio adequately and promote discipline in investments through regular and systematic investments. This works out well especially for salaried individuals who may not have the time, resources and expertise to research stocks.
  • Mutual Fund industry is today well-regulated and many good funds have outperformed resulting in appreciation of investments for the investors.

Founded in 2005, ABans Group has grown from being a trading house to a dynamic and diversified business group. We provide expertise in Broking Services, Merchant Banking, Non-Banking Financial Dealings, Gold Refining, Realty and Infrastructure. In a nutshell, Abans Group is a comprehensive Financial Services and Solution Provider, which aims to provide an end-to-end financial solution to all its clients.