Are you facing a tough time searching for a direction which will simplify your investing journey? Are the various options available in the market mind-boggling you? Then this article will undoubtedly prove to be of great help. Before commencing the investing process, you first need to understand the meaning of investing and thereafter adopt it.
Investing is a method of putting away some money for the rainy day and earning a notable return over the invested sum. In a layman term, one can define investing as the process of saving money and getting quite a good return on the saved money. Therefore, we can say that there is a massive fissure between saving and investing. Saving is just keeping aside some money and earning a nominal rate of return on it. On the contrary, investing will facilitate you to save in accordance with multiplying your money manifolds. Hence, investment is not just a method of penny-pinching but an opening for creating money from money.
Evolution of Mutual Funds
“Don’t work for money, make it work for you”, says Robert Kiyosaki, a businessman, and a self-help author. The quote signifies the importance to pin your money at an apt locus so as to bank an impressive returns. Carrying forward the concept, financial experts have devised the concept of Mutual Funds over the time to ease the task of clients.
Mutual Fund is an investment scheme where the customers can put their money and notice the growth it makes. Let us understand the concept with an example. There were two persons, Mr. X, and Mr. Y. Both had promising jobs. They earned well and also wanted to accumulate corpus for their future needs. Mr. X saved small amount monthly in his saving bank account while Mr. Y invested in the mutual funds. After some time, the two of them monitored their fund’s growth. On one hand where Mr. Y realized he is getting a mere interest of 3-4% on the other, Mr. X got a return of 12-15%. We can clearly notice the difference. Thus, one can say that Mutual Funds are no doubt a better way of saving and doubling the money.
Strategy followed for prolific returns
Doubt comes to the mind of the investors that it is not easy to provide such huge returns and to reciprocate the money, mutual fund schemes are adopting some unethical means. This is a mere misconception and nothing else. Mutual Fund is just a synonym of capital investment. The scheme was launched because of two main reasons namely, to provide increased returns and to give a diversified portfolio to the clients.
Imagine a situation where the client directly invests in the stock market. If the person named Jay, is having a surplus of INR 50,000, he can buy a few shares of two-three companies at max due to the insufficiency of funds. But, in a mutual fund, the money of numerous small investors like Jay is accumulated and then reinvested in the capital market. It sounds like an individual investment but is much more huge than that. For example, 20 investors invest INR 50,000 each. The total investment amounts to INR 10,00,000. So, it is possible for the mutual fund company to buy more shares than any individual investor with the accumulated amount. The benefit of the collaboration is that the investors get comparatively higher returns individually.
Better portfolio diversification
When the gathered money is used to buy the stocks of listed organizations then, there is a broad scope of investment in different companies. When the client invests in two or three firms and if any one of them becomes bankrupt then the portion of finances invested in that company is lost. Unlike, the stock market, a mutual fund is quite safe because the investment is made in some companies and even if one or two of them close down, the remaining will cover up for the loss. Hence, securing the investment.
Understanding the role played by the Asset Management Companies (AMC)
Have heard of cooperatives? Cooperatives are small groups formulated with a view of getting gains by pooling up the yield instead of selling it individually. AMC is a cooperative. Where to invest, how much to invest, what should be the percentage share of each stock in the portfolio? These issues need to be resolved by someone. But, it is not possible for a single person to manage all of it. Hence, various companies hold up the responsibility of managing the funds on behalf of the clients. These companies appoint efficient fund managers to deploy the finances accumulated from variegated customers. The AMCs launch various schemes under each category viz, equity, debt, hybrid, etc. Once the client invests in one of the schemes, it becomes the liability of the company to manage and provide returns as promised.
Therefore, the mutual fund has been able to serve and fulfill each and every criterion stated above. The clients can monitor the growth of their funds and wave goodbye to all their worries about their future.