The Government of India and its regulatory bodies has long understood the importance of channeling household savings into capital market. They have continued to support Mutual Funds as a means to generate wealth for individuals as well as provide a stable source of capital market funds for sustained economic growth. Increasingly investors are beginning to understand the importance of goal based investing and look up to Mutual Funds as a prominent aspect in wealth creation.
When someone invests in any scheme it is “through” Mutual Funds and not “in” Mutual Funds.
What is the difference?
When you invest through Mutual Funds, you invest in stocks, bonds or other investments indirectly with the help of professional managers. Instead of doing the tasks yourself, you pay a small fee and avail the services of a fund management company. These services include not just research, selection and buying-selling of various investments, for which a fund manager is well qualified, but also the accounting and administrative activities related to the task of investing, which many may not like to do themselves.
Benefit of investing in Mutual Funds –
- Low Investment Threshold
- Professional Management
- Ease of Accessibility
- Diversification
- Adequate Transparency
- Ease of Monitoring/Tracking Investments
- Averaging Rupee-Cost Through Systematic Investment Plan (SIP)
- Liquidity
Demerits of Investing in Mutual Funds –
- An investor does not have any control over the investments made by fund managers
- Returns may be lower compared to directly investing in shares
- Risk of over diversification of schemes exists
- Due to lack of expertise and various schemes available in same categories, investors more or less end up investing in the schemes which is against their investment objective.