Why Mutual Fund?

Investing in a mutual fund is like an investment made by a collective. An individual as a single investor is likely to have lesser amount of money at disposal than say, a group of friends put together. Now, let’s assume that this group of individuals is a novice in investing and so the group turns over the pooled funds to an expert to make their money work for them. This is what a professional Asset Management Company does for mutual funds. The AMC invests the investors’ money on their behalf into various assets towards a common investment objective.

Mutual Fund is a vehicle that enables a collective group of individuals to:

• Pool their investible surplus funds and collectively invest in instruments / assets for a common investment objective.
• Optimize the knowledge and experience of a fund manager, a capacity that individually they may not have
• Benefit from the economies of scale which size enables and is not available on an individual basis

Why One should invest in mutual funds?

Reason 1:
They are investments instruments which are capable of giving high returns . An average mutual fund scheme returns easily beats inflation in longer run and a good scheme can give far superior returns.

Reason 2:
Our Mutual Fund industry is one of the best regulated industry in the world. They are governed by the strict guidelines layed down by SEBI(Securities & Exchange Board of India).

Reason 3:
Investments decision of a Mutual Fund is taken by their AMCs and Fund Managers. They are experts who make investments decisions after doing intensive research and analysis of a company & industry. (Individuals generally don’t have time and resources to do research hence best option is to let MF manage your investments)

Reason 4:
This industry is highly liquid. Even more liquid than stock markets. Payments are generally made through cheques or in some cases they are directly credited to your bank accounts , If your bank is allowing RTGS & electronic clearing and mutual fund AMC is providing such facility.

Reason 5:
Investments are diversified into many companies & sectors. Which make our investments safer and consistent growth prospects. Diversifying is usually not done by small investors , for such a actions one requires lots of funds.

Reason 6:
Tax treatments- Governments encourage investments in capital markets and has given many tax sops. Under i) 80(c) investments done upto one lakh fifty thousand in specific mutual funds schemes which is called ELSS(Equity Linked Saving Schemes.) are exempt from tax. ii) Any units held for more than one year in equity funds if redeemed is treated under long term capital gain tax which is zero percent currently i.e. the whole profit is tax free. If one plans to redeem equity fund units before one year then he has to pay tax of only 15% on the profits.

Reason 7:
Mutual Funds are much cheaper compared to direct exposure to capital market since one does not need demat account ,annual charge to maintain account, charges imposed on demat holdings, stamp duty on transaction are not levied.

Now, let’s assume that this group of individuals is a novice in investing and so the group turns over the pooled funds to an expert to make their money work for them. This is what a professional Asset Management Company does for mutual funds. The AMC invests the investors’ money on their behalf into various assets towards a common investment objective.

Hence, technically speaking, a mutual fund is an investment vehicle which pools investors’ money and invests the same for and on behalf of investors, into stocks, bonds, money market instruments and other assets. The money is received by the AMC with a promise that it will be invested in a particular manner by a professional manager (commonly known as fund managers). The fund managers are expected to honour this promise. The SEBI and the Board of Trustees ensure that this actually happens.

SIP Planning

Systematic Investment Planning (SIP)
A systematic investment plan (SIP) is an option where you invest a fixed amount in a mutual fund at regular intervals. It could be monthly or quarterly. The minimum investment amount in most mutual funds is Rs 1,000 per month. The money may be transferred through ECS with standing instructions also. Because it’s systematic, a SIP helps you plan for your long-term goals along with the short-term ones.

Disciplined & Regular Savings
A SIP is a disciplined investment plan and helps reduce susceptibility to market fluctuations. It is a powerful tool that helps you do cost averaging and allows you to benefit from market volatility, which translates into substantial wealth creation in the long run. Investors can select the tenure of investment according to their needs. Usually, you should stay invested for a long enough period, so as to maximise your returns.

Rupee Cost Averaging
When you buy more units at a lower price (when the market falls) and lesser number of units at a higher price (when the market goes up), you average out your investment costs. Suppose a monthly SIP is for Rs 10,000 and the fund’s net asset value (NAV) is Rs 10. This will result in 1,000 units being credited to you. However, next month, on account of volatile market conditions , if the fund’s NAV falls to Rs 5, you will get 2,000 units. This will lower your average purchase cost. A SIP helps you buy more when the stock market is falling and less when it is rising.

Reach Your Financial Goal
A SIP is an excellent tool for investors to build wealth. There is no need for a one-time lump sum investment. A regular investment pattern helps build discipline in investors. You can go for a SIP according to your goal – marriage of children, their education needs or your retirement corpus. The ‘rupee cost averaging’ makes the market fluctuations work for you.

Convenience
This is a very convenient way of investing. You have to just submit cheques along with the filled up enrolment form. The mutual fund will deposit the cheques on the requested date and credit the units to one’s account and will send the confirmation for the same.

Portfolio Analysis & Restructuring

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