While most of us hesitate in investing other than in the usual banking products, in case you would like to start small then mutual funds are a great option. Mutual funds might sound challenging but let me simplify them for you and also explain the simple tool of SIPs (Systematic investment plan), which is easy and convenient.
A Mutual fund is a company that creates a pool of money from investors like us and then manages that pool by investing in Government securities, bonds, equity shares, and other financial instruments. All Mutual Funds schemes are registered with and regulated by SEBI (Securities and Exchange Board of India) so that the investors are well informed on how their money is being managed – thus providing our invested funds a layer of protection.
Mutual funds vary in their investment objectives, providing us the flexibility to create an investment plan based on our individual financial goals. This means that if I wanted Rs 10 to be invested only for a one-year time frame, another Rs 10 Rs for a 2-year time frame and another 10 Rs for 5 years or longer, I have the flexibility to select schemes based on my cash flow requirement.
Returns are dependent on the strategy that I have selected – Debt mutual funds which are similar to your bank FDs, are considered safe. Equity mutual fund schemes come with much higher returns than Debt funds but are associated with stock market risk. We should go for Debt or Equity basis our expectations with our returns, our capacity to take a risk and our time horizon (the longer that we can stay invested, the higher we can allocate towards equity).
The biggest advantage the mutual funds have to offer is the liquidity- that is I can convert my invested amount into cash at any time by sending the Mutual Fund House a request.
Investing in Mutual Fund is quite easy. Most banks have their line of Mutual Funds and the minimum investment can be as small as Rs 500. They also offer an investment mechanism called SIP- Systematic Investment Plan. Through the SIP option, we can invest at regular intervals – like monthly or quarterly. We can opt for the ECS mandate or issue post-dated cheques for investing through SIPs. Besides selecting the fixed amount that we would like to invest every month (which can be as small as Rs 500), we can select the time period in months for which we would like the SIP to continue. Thus our small monthly investments will get processed in an auto mode directly from our bank account. Apart from eliminating the problem of lack of time, discipline and market timing, SIPs offer a great means of compounding our earnings. It is also an effective way to avoid making that last minute dash to invest in our tax-saving funds at the year end.
Start your investing experience with a small mutual fund SIP. Even a novice can generate good returns through this mechanism especially in Equity mutual funds. If you do your research; invest through mutual funds and stay invested for the long term, then it is the best way to accumulate wealth for your long term goals like child’s education, a house, retirement etc.
Looking forward to your making an effort to invest your money better!!
Anupama Aggarwal is an MBA (Finance) and a Certified Financial Planner working with International Money Matters, a financial planning cum investment advisory company. A mother of two – 14 and 12 yrs old, has lived in other countries; ran an entrepreneurship firm involved in organizing educational trips for children before re-entering the corporate world. With experience in financial services sector, she is passionate about helping people take better informed financial decisions. Widely travelled across 20 countries, she loves to read, interact with new people and cultures and is always ready to put on her dancing shoes.
For specific queries on personal finance, write to her on her email id: email@example.com Phone: 099100-96751
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