Everyone says “Invest in Mutual Funds, SIP karo, future secure hoga”.
But is it really that simple? Are mutual funds the best way to grow wealth—or just another hype? Let’s break it down with facts
What Are Mutual Funds, Really?
A mutual fund is an investment vehicle that pools money from many investors to purchase a diversified portfolio of securities, such as stocks, bonds, and other assets, managed by professional fund managers. Investors buy units of the fund, representing a portion of its total holdings, and receive returns proportionally after expenses are deducted. This approach provides diversification to spread risk, professional management for expertise, and access to a wide range of investments that might be too expensive for an individual to buy alone.
So , to make things simpler :-
1. Pooling Money :
A fund company collects money from numerous individual investors who share similar investment goals.
2. Diversified Portfolio:
This pooled money is then invested by professional fund managers in a wide array of securities, including equities (stocks), debt (bonds), and other market instruments.
3. Net Asset Value (NAV):
The total value of the fund’s holdings, minus any expenses, is divided by the total number of investor units to determine the fund’s Net Asset Value (NAV), which reflects its daily performance.
4. Investor Units:
Investors purchase units of the fund, with each unit representing a fractional ownership of the underlying assets.
5. Returns & Expenses:
Any income or gains generated from the investments are distributed proportionally to the investors, after accounting for the management fees and other expenses charged by the fund.
Now, we saw and understood how Mutual Funds Works , it time to look for “WHY TO CHOOSE MUTUAL FUNDS”?
WHY TO CHOOSE MUTUAL FUNDS
Mutual Funds are one of the most popular investment options in India because they allow investors to start small and grow steadily. You don’t need lakhs to begin—investments can start as low as ₹500 per month. Professional fund managers handle your money, ensuring it is diversified across multiple companies and sectors, reducing the risk compared to investing in a single stock.
Key reasons why people prefer Mutual Funds:
- Accessibility: Start with as little as ₹500.
- : Your money is spread across different assets, reducing risk.
- Professional Management: Expert fund managers make investment decisions for you.
- Liquidity: You can withdraw your money anytime (in most open-ended funds).
- Long-Term Growth: Power of compounding can turn small amounts into big wealth.
- Tax Benefits: Certain mutual funds (ELSS) provide deductions under Section 80C.
In short, Mutual Funds make investing simple, affordable, and effective for both beginners and experienced investors. They bridge the gap between traditional savings and the stock market, giving you the best of both worlds.
Lets take an scenario :
Suppose you start investing Rs 500 per month in long-term equity mutual funds , which gives an Average annual return of 12% (Assumption), so ,
5 years later =around Rs 41000/-
10 years later = around Rs 1,15000/-
20 years later = around Rs 5,00,000/-
30 years later = around Rs 17,00,0000/-
Conclusion:
“Even with a tiny start like ₹500, patience and consistency can help you build wealth. That’s the real power of mutual funds.”
THE CATCH : MUTUAL FUNDS
Apart from the good sides of mutual funds that we all see, there is something that people often ignore or dont know about it , but everyone including the investor and the compony must consider few things in while investing money in mutual funds or any other segment in share market.
1.Uncertainity of market :
People must know that stock market is very volatile and uncertain, so despite being choice of investment and trading , it does not guarantee returns , many factors affect the market. So its suggested to have patience and keep calm.
2.Under performing of Manager:
Stock market is indeed is volatile and uncertain , but through the fundamental analysis , the portfolio manager can , provide some decent returns after studying the aspetcs , however not all portfolio managers follow the same strategy , everyone has their own way to research market and execute transactions, since market is volatile and uncertain , the selected strategy can may or may not provide desired results , but how to know if a manager has underperformed ?
There are benchmarks decided for different schemes, if the returns are near that benchmark or more the manager has performed well , while lower than that can be considered as as Under performing manager.
3. Hidden charges:
Another very important thing to look while investing in a scheme , if your portfolio manager performed well , you get decent returns , when you want to withdraw you money , you suddenly see it less than what you were expecting, HOW DID THIS HAPPENED ? Thanks to the hidden charges, which were actually there , but hidden from you , its the responsibility of distributor , to tell the investor every detail of the scheme, and also the investor need to make sure that , he knows everything about the scheme , in case of direct investment route , investor need to learn and see every thing related to the scheme , stated in the scheme document , while investing through regular route , one can avail the benefit of professional assistance while investing.
So its important to know everything related to scheme before putting your hard earned money in it.