Mutual funds are the answer to this problem. The money invested in the mutual funds is handled by stock market experts cum fund managers. They handle your money professionally with complete knowledge of the stock market.
How Mutual Funds Work
Mutual fund investments are made after collecting money from several investors and putting the whole sum together for investment. This investment is made depending upon the theme of mutual fund. If it is a large cap mutual fund, it will invest only in the large cap stocks.
They do not just invest in stock markets
One of the biggest misconceptions that investors have is that mutual funds means investment only in the stock markets. However, this is not true. There are debt mutual funds for conservative investors who prefer not to take risk. Here, money is invested in debt instruments involving less risk factor. Thus, mutual funds can be chosen depending upon your investment horizon, risk appetite and investment objective. You can choose from toms of mutual fund schemes available in the market to choose the one that best suits your requirements.
Benefits of investing in mutual funds
Investing in mutual funds has several benefits for the investors. Let us discuss a few of them:
- Compounding power: Mutual funds help the investors in harnessing the power of compounding money. It is the interest earned on interest. Thus, the investment value increases on an ever increasing rate. This leads to a significant increase in the investment value.
- Diversification: One of the key benefits of mutual fund investing is the diversification of portfolio. When an investor own different stocks in a portfolio, some assets rise while some fall. Diversification helps in cancelling out the losses of one with gains from other, thus reducing the risk.
- Capital Gains distribution: Profits in a mutual fund are distributed after the sale of one of the underlying assets at a higher price. This is known as capital gains distribution which can further be used to get more mutual funds.
- Automatic reinvestment: Mutual funds offer returns to the investors in two ways- dividends and value increase. The value increase benefit can be utilized when the mutual fund units are sold. There is an additional benefit of dividends that can be used to automatically buy more mutual fund units.
- Transparency: With regular tweaking by SEBI, mutual fund investment has become more transparent. Regular updates are provided by the asset management companies regarding the performance of the funds to the investors.
- Variety: Mutual fund schemes help you in investing in different types of industries, sectors and asset types. These include blue chip companies, bonds, technology stocks and many more. This makes the customer spoilt for choice.
Remember, whenever you start investing in the mutual fund investments, there are several factors that should be kept in minds always. In order to get an in-depth insight into which ones are the best for you, talk to our financial experts and get advice regarding the same.