A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.
Mutual funds have advantages and disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, they provide liquidity, and they are managed by professional investors. On the negative side, investors in a mutual fund must pay various fees and expenses.
Primary structures of mutual funds include open-end funds, unit investment trusts, and closed-end funds. Exchange-traded funds (ETFs) are open-end funds or unit investment trusts that trade on an exchange. Some close- ended funds also resemble exchange traded funds as they are traded on stock exchanges to improve their liquidity.
Earning - Inflation = Real Return
i.e. You invest in a scheme where you get 8% return on your investment. Now if we consider 6% inflation, you real rate of return would be only 2% (8% - 6% inflation) Is it enough to achieve your different goals of life?
Invest in ups & downs (Value averaging)
Who does not wish to purchase stocks at a lower price and sell it at a higher price? No one knows whether any given time is the right time to buy or sell? A more successful strategy is 'Rupee Cost Averaging' wherein you invest a fixed amount regularly. Thus you purchase more when the prices are low and purchase less when the prices are high. SIP investments take advantage of this strategy
Power of compounding
Just think, you are investing Rs. 10,000 per month in Postal Scheme for 30 years. You will get Rs. 1.5 Cr at the rate of 8% whereas Mutual Fund Equity scheme can give you Rs. 23 Cr (At 15% CAGR)
- Professional investment management
- Diversification
- Low cost
- Convenience
- Flexibility
- Liquidity
- Transparency
- Variety
- Tax benefit
