Mutual funds, the only long term

investment solution
Mutual funds kyun sahi hai?
AMFI (Association of mutual funds in India) recently started the ‘mutual funds
ahi hai” campaign to promote investment of retail investors in mutual funds.
The retail investing scenario in India is not great. In spite of the rally in Indian
stock market post demonetisation, the number of retail investors account for less
than 5% of the population in most states. More than 60% of all investors are
present in the states Maharashtra, Gujarat, Tamil Nadu, West Bengal and Uttar
Pradesh. It is the Foreign Institutional Investors (FIIs) who have benefitted the
highest from this rally. If foreigners benefit from a rally in our stock markets
something is not right with our country’s economy.

In a country where people rally majorly on FDs, insurance, bonds, pensions and
unaccounted income for financial security, why am I saying that investing in
mutual funds is the only long-term investment solution?

Let us start with numbers:

From 1995 to 2015 Sensex, the 30 stocks index of Bombay Stock Exchange,
rallied from 3000 to 27000. A 9x return in 10 year. An investment of Rs.
10,00,000 in 1995 would become Rs. 90,00,000 in 2015. Your investment would
increase at the rate of almost 12% annually, beating the inflation rate in India
by a great margin. In the same duration, the same investment in FDs at 8% (the
current rate is below 7%) would increase to Rs. 21,58,925. Investment in the
Sensex stocks would give you more than 3 times the returns on FD.
Thus staying invested in the Indices’ funds is a sure shot way to financial
security. However, there are various funds in India that beat the Sensex or Nifty
50 index by a margin of 6-8% annually.

This was just the returns you get on investing in mutual funds, the story does not
end here. What else makes mutual funds great? Have a look:

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Managed by experts
Let’s face it, we do not have the right knowledge to invest in stocks on our own.
Starting investing in stocks by ourselves is risky and dangerous if done with half
knowledge. In such a scenario investing through mutual funds ensures that our
investments are looked after by experts. Experts who have the right technical
knowledge and years of experience in the stock market.
Diversification
Mutual funds abide by the adage ‘do not put all your eggs in one basket’.
Mutual funds have to conform to certain norms, norms that ensure that all your
capital is not invested in a few stocks, which could be risky. Diversifying your
investments mitigates the risk posed by certain stocks.
Liquidity
In case of open-ended schemes, the investor can get his investment back at will.
You can withdraw your investment any point in such schemes. Certain close
ended schemes, although do not allow you to withdraw your money, are
tradable. Thus when in need, you can withdraw your capital.
Convenience
We do not have the time or energy to look after our own investment. Mutual
funds solve this problem too. Once you have invested in mutual funds, you do
not have to track the stocks. It is done for you by the fund manger who is
looking after your fund.
Low Capital Requirement
This is probably the biggest advantage of investing in mutual funds, one can
start investing with an amount as low as Rs. 1000. One can get exposure to
many stocks at such a low investment.
Other than these benefits of mutual funds, there are various types of mutual
funds. Someone who can invest a lump sum amount can opt for SIPs wherein
you have to invest small amount on a regular basis. You can also choose a fund
that suits your risk appetite. The duration, amount invest, are a flexible too.
Mutual funds are quite transparent as one get access to investing policy and
other related information easily. Certain mutual fund schemes also offer tax
benefits.
Thus, mutual funds sahi hai.

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