Investing in stocks is considered a surefire way to increase your wealth over the long term. And when it comes to stocks, mutual funds are one of the most popular financial products among individual investors. Mutual funds make diversified investments in a variety of securities and bonds based on predetermined criteria.
Investing in mutual funds is a safe investment vehicle and is usually preferred over securities by individual investors.
“Retail investors should get exposure to stocks through mutual funds, as mutual funds are inherently more diversified and managed by professionals. Additionally, they give you a small amount of money Give them a taste of a good tip by letting go or saying something like, INR500,” says Deepak Agarwal, a Delhi-based chartered accountant and financial advisor.
Investing in mutual funds: There are many reasons to invest.
1. map returns to index: Mutual funds allow investors to map their returns to benchmark indices such as Nifty 50, Sensex, Nifty 100, Sensex IT, etc.
2. managed by Expert: Unlike individual securities, investment trusts are managed by professionals and are considered safe and secure.
3. Diversity: Based on mutual fund themes and categories, investors can gain exposure to a large number of stocks across a range of market capitalizations. For example, if someone chooses a large-cap fund, they will gain exposure to a large number of large-cap stocks. Similarly, choosing a mid-cap mutual fund will give you exposure to a large number of stocks in this category.
Also read: Inflows into equity mutual funds soar for 35 straight months: Report
Four. auto mode: You don't have to worry about asset reallocation. For example, at the end of a financial year or even in the middle of a financial year, if you feel the need to redeem some shares and reallocate the proceeds to other shares, this will be done based on pre-determined criteria. It is done by the fund manager.
Five. transparent: Investing in mutual fund schemes is very transparent and you can choose a scheme only after evaluating the past returns of the scheme, the investment philosophy of the scheme, your risk appetite, etc., among others.
continue investing for the long term
However, it is important to remember that investing in mutual funds can yield significant returns if you stay invested for a long period of time. This is essential to minimize the effects of volatility.
For example, your investment in a mutual fund may decrease in any given year, while your investment may increase significantly in another year. But overall, from the perspective of the initial investment amount, the investment in the scheme grows over a period of time.
Let's say you invested INRIn a mutual fund scheme, if the investment amount is 100, the investment amount decreases by 5% in the first year, increases by 8% in the second year, decreases again by 4% in the third year, and decreases in the fourth year. It has rebounded by 20%.
| Year | return | INR100 becomes (Rs) |
| 1 | -Five% | 95 |
| 2 | 8% | 102.6 |
| 3 | -Four% | 98.50 |
| Four | 20% | 118.20 |
So, if you stay invested in this scheme for four years, your overall return will be around 18% higher than before. INR100～ INR118.20, regardless of the volatility over the last few years. The annualized return over four years is just 4.27%.
Therefore, investing in mutual funds leads to lower risk if the investor stays invested for the long term.
In fact, this is what motivates mutual fund investors to invest regularly through systematic investment plans (SIPs). This helps spread out your investments over different time periods.
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