Benefits of Mutual Funds :- Qualified and experienced professionals manage Mutual Funds. Generally, investors, by themselves, may have reasonable capability, but to assess a financial instrument a professional analytical approach is required in addition to access to research and information and time and methodology to make sound investment decisions and keep monitoring them.
- Since Mutual Funds make investments in a number of stocks, the resultant diversification reduces risk. They provide the small investors with an opportunity to invest in a larger basket of securities. * The investor is spared the time and effort of tracking investments, collecting income, etc. from various issuers, etc.
- It is possible to invest in small amounts as and when the investor has surplus funds to invest.
- Mutual Funds are registered with SEBI. SEBI monitors the activities of Mutual Funds.
- In case of open-ended funds, the investment is very liquid as it can be redeemed at any time with the fund unlike direct investment in stocks/bonds.
How are mutual funds different from portfolio management schemes?
In case of mutual funds, the investments of different investors are pooled to form a common invertible corpus and gain/loss to all investors during a given period are same for all investors while in case of portfolio management scheme, the investments of a particular investor remains identifiable to him. Here the gain or loss of all the investors will be different from each other.
Are there any risks involved in investing in Mutual Funds?
Mutual Funds do not provide assured returns. Their returns are linked to their performance. They invest in shares, debentures and deposits. All these investments involve an element of risk. The unit value may vary depending upon the performance of the company and companies may default in payment of interest/principal on their debentures/bonds/deposits. Besides this, the government may come up with new regulation which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds.
As mutual fund schemes invest in stock markets only, are they suitable for a small investor like me?
Mutual funds are meant only for a small investor like you. The prime reason is that successful investments in stock markets require careful analysis of scripts which is not possible for a small investor. Mutual funds are usually fully equipped to carry out thorough analysis and can provide superior returns.
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