The country has been awash with “Mutual funds sahi hai” ads in the past few months. Be it between overs during a cricket match or at the beginning of a YouTube video, you see people across all sections talking about how mutual funds have helped their money grow.
The ad blitz has built enough steam for people to talk around the water cooler at work or over dinner at home. So, what makes mutual funds sahi?
Is it safe to invest in mutual funds?
There is always an element of risk in every investment you make. You might argue that some options like bank savings are completely free of risk. That’s true; you may not lose your capital, but there are external factors like inflation that could eat into your returns.
Mutual funds, on the other hand, are largely safe and can generate returns that outstrip inflation rates. They are largely safer compared to other options like stocks and have the potential to provide higher returns than savings accounts and fixed deposits (FDs).
This is because mutual funds spread your investment across several sectors of the economy. The diversification reduces risk because different sectors react differently to market swings. So, losses of one particular sector can be offset by good performance of another.
How to invest in mutual funds?
One of the best ways to start investing in mutual funds is through systematic investment plans (SIPs). The best part is you don’t need a lot of money to start investing through SIPs. There are many mutual funds that allow you to begin with as little as Rs 500.
SIPs also allow you to invest at regular intervals. This could be on a monthly or quarterly basis. The important thing, however, is to stick to your investment schedule.
No time like the present
If you are wondering when might be a good time to start investing, the answer is: 20 years ago! But, since you cannot travel back in time, the next best option is NOW! You just need to fire up your computer and go online to start your investment journey.
There is no time like the present to start investing in mutual funds. This is because, if you start investing early, the power of compounding can help you earn higher returns later on. For instance, if you are planning to invest for your retirement, even a five-year delay can cause a big setback to your total corpus.
Benefits of mutual funds
- Professional management
You need to spend a lot of time to analyse the stock market in order to buy a promising company stock. This can be quite tough if you have a regular job. On the other hand, mutual funds offer the advantages of professional management. It is the job of fund managers to find good investment options for you. These managers sift through heaps of research papers and track every market movement to its minutiae to maximise your returns.
- Portfolio diversification
If you were a lone ranger, you’d have to invest in company stocks, bonds and commodities separately to diversify your investment (as explained earlier, spreading your money helps reduce risk). That would cost you a fat wad of money.
However, mutual funds are that one-stop shop which help you invest in different asset classes and that too with a small amount.
- Liquidity
A lot of investment options have tight lock-in periods, which means you’d be penalised if you decide to withdraw your investment before the contract is up. This can be a problem if you need cash in case of an emergency. Equity mutual fund, for instance, is one scheme that is quite liquid. You have the option to redeem your investments anytime you wish (except for ELSS schemes).
To sum up, mutual funds have several advantages. They provide high returns, reduce your risk exposure and help you invest in small amounts. Hence, for the aam aadmi, mutual funds sahi hai.
Click here to know and start investing in mutual funds today.
