Nowadays, Mutual Funds are one of the hottest topics among small investors. Since the last few years, the mutual fund industry is performing well and offering an average return of 20% per annum. Compared to other traditional investments, it has given a far better return…. Fixed deposits are offering a maximum return of 9.5%, Postal schemes are offering a return of merely 7 to 8%, and companies’ fixed deposit scheme too are offering returns in the same range.On one hand, we are not getting sufficient returns from our traditional investments and on the other there is apprehension about rising inflation. If you are keeping money idle, then apart from an opportunity lost there is a devaluation of your amount equivalent to the inflation rate. Currently, inflation rate is around 4.5%, thus if you are investing your money then you should keep one thing in mind that the returns from such investments should be at least equal to the inflation rate. This helps us calculate the real returns from any investment. For eg. if Fixed Deposit is giving a return of 9.5 percent then in real terms the return will be 5% i.e. 9.5% less 4.5%. Then you should also consider the taxation rates to get your effective returns.Now it is essential to find an investment, which will offer higher returns and at the same time be easy to operate and Mutual fund is one that satisfies both objectives.The main features of a mutual fund can be studied in the following way-1. Designed to suit the individual small investorsMutual funds are designed in such a way that small investors can invest their money in the scheme. The investor thus can invest in instruments, which require bigger initial outlays.2. Adjusting the period of maturityMutual funds have the capability to covert a primary security of a certain maturity in to the another security of different maturity.For example, suppose an investment has a maturity period of one year, thus it is necessary to engage your fund for at least one year. However, when you are opting for mutual funds, you need not bother about maturity terms of investments made by the mutual fund. The investor can withdraw the investment as per the terms between the mutual fund and him.3. Risk DiversificationInvestments mean managing risk rather than managing returns and one of the good ways of managing risk is diversification of one’s investments. The small investor faces a hurdle while trying to diversify his investment due to lack of funds and thus is bound to face higher amount of risk. However mutual funds can easily diversify its risk as compared to an individual investor as it has access to larger funds. Thus when a mutual fund investor is investing an amount as small as Rs 5000 then too he is reaping the benefits of diversification.4. Professional touch to your investmentOne way to enjoy sound sleep is to handover your investments into expert hands. Yet, it is not possible for small investors due to the cost associated with it. It is not feasible too, to employ a fund manager for small investment like Rs 5000.Mutual funds find possible and feasible to employ experts to control assets under management (AUM). Hence by investing in mutual funds you are hiring the services of fund managers.Thus, from the above facts it can be concluded that it is always better to opt for mutual funds to manage your risk and maximize returns.
source: http://netpaisa.blogspot.com
