While investing, you need to keep one important thing in mind. If you want to enjoy the rewards of investing, you need to be prepared to take risks. While it is easy to continue investing when the market is on a bull run, it is of the utmost importance to avoid the temptation of redeeming your investments when the market is volatile. Regardless of the market conditions, you need to keep investing in your mutual fund scheme. One of the most preferred investment options, mutual funds are schemes in which the asset management company pools money from a group of investors and, after enough money is collected, the firm uses it to buy financial securities.
How do mutual funds work?
Please make note of the fact that AMCs are known for managing all the types of mutual funds that are available in the market. Be it equity funds or debt funds, AMCs manage them all.Depending on the mutual fund variant’s objective, the pooled from different investors is allocated to various avenues such as bonds, stocks, gold, and other securities.
A professionalreferred to as a fund manager, is hired to oversee each fund. Their main goal is to earn optimum returns on the fund’s investments. Then, the income which is generated by the fund is distributed among the investors proportionately.
Do mutual funds assure investors the safety of capital?
Mutual funds don’t assure things like capital protection or fixed returns to the investors. However, that’s where the thrill of investing lies. Mutual fund schemes will be a poor investment tool if they assured those things. The main objective behind investing in mutual funds is earning higher revenue than what traditional investment options are known for offering their investors. The main reasons for higher returns on these schemes are extensive market exposure and professional management. Also, these schemes come with benefits such as:
-
Convenience:
One of the most alluring benefits of mutual funds is they can be considered a hassle-free and straightforward exercise. Apart from the paperless process, you can complete the activation procedure from the comfort of your home. And, even after the commencement of your investment journey, you will get regular updatesabout your holdings. This ensures that you can make necessary adjustments if needed.
-
You can start small:
A common misconception that people have about mutual fund investments is that one can invest in mutual funds only if they have a large sum of money at their disposal. However, you can begin investing even with a small amount. A systematic investment plan (SIP) helps let you invest a small amount at regular intervals. In case your income rises over time, you can also choose to increase your SIP allocation. Also, through SIPs, you can benefit from the power of compounding.
-
There are tax benefits to mutual funds too:
Equity-linked savings schemes (ELSS) are known for coming with tax benefits. Known for allocating funds primarily to equities and their related instruments, it is possible to claim tax deductions under Section 80C of the Indian Income Tax Act, 1961.
-
You can enjoy professional help:
Another misunderstanding about investing money in mutual funds is that they have to take care of all the investments all by themselves. However, that’s not the case. In a mutual fund, a fund manager is responsible for the upkeep of your portfolio and handling your investments. Fund managers are supported by a team of researchers who are responsible for tracking the market. Mutual fund schemes are suited for both salaried professionals and business owners as they might not have the time to track markets or make investments on time.
Apart from the benefits above, mutual funds investment also makes the process of diversifying funds easier. Even though mutual funds do not assure the safety of your capital, diversification of funds to different asset classes results in the reduction of investment risks.