MUTUAL FUNDS

Mutual Funds - Money Matters.

Mutual funds are the easiest and safest avenue for advanced investments. Here, advanced investments refer to the scope of growth against the backdrop of high risks which most investments have. Mutual funds have risks. The disclaimer: "Mutual funds are subject to market risks. Please read the offer documents carefully before investing", makes it clear.

Money is an asset. Money is an asset with some specialities of its own. Normally, limited amount of anything is considered easy to manage. Though, money is not an exception for this, the opposite is true.

Even though, small amount of money is easy to manage because you know the exact amount you own, that's not what everybody wishes to have. This is because, the problems associated with money haunts more when it is scarce and not when it is in surplus. Therefore, the management of money primarily focuses on overcoming scarcity and promoting growth.

Asset Management Companies.

The responsibilities of asset management companies in managing money is huge. Their role involves monitoring the asset (money) and growing it in all possible ways. Asset management companies manage money taken from customers and putting it in profitable entities. These entities are referred to as funds. A customer is referred to as an investor. When many investors put their money with the common goal of growing it, it becomes a mutual fund. In a mutual fund, everybody agrees to deposit their money with a collective spirit of growing it and reaping its benefits. This is mutually beneficial for all stakeholders and beneficiaries associated with it. The investor, therefore, helps himself and others involved in this by sharing profits or sharing loss associated with that fund.

Asset management companies or AMC as they are called, manage different kinds of funds. The funds are categorised into different types based on their returns and the associated risks. Some common types of funds are the debt funds, the equity funds, hybrid funds, Exchange Traded Funds (ETF) etc. Fund managers manage these funds to bring positive results in investments.

The Risks in Mutual Funds.

Mutual funds have some drawbacks. In mutual funds, the maturity benefit is not well defined. The investor will have some idea about the percentage of returns he would get by keeping the money invested in a managed fund, but doesn't know exactly how much that money would be.

The market is always unpredictable. Anything can happen anytime with the investors money. This is the reason why mutual fund investments are called risky. However, as there are two sides of a coin, there are two aspects of risks. The opposite of risk is growth and mutual funds are known for that.

The Potential for Growth in Mutual Funds.

Mutual funds have high potential for growth. Mutual funds have been known for giving high returns in comparison to other investments. The returns are better in it in comparison to fixed deposits and recurring deposits.

Mutual Fund Investments.

For mutual funds, the aspiring candidate have to become KYC compliant. For this, the person has to get his KYC registered through a KYC Registration Agency. KYC means Know Your Customer. KYC is mandatory for mutual funds. KYC is the process of establishing the identity of the individual who wants to invest in mutual funds.

Just like in banks, the KYC is required for opening account in mutual funds. For KYC, the documents establishing the proof of age, proof of address, proof of bank account etc have to be submitted as per the prescribed method. Once, the KYC is complete, the individual becomes eligible for investments in mutual funds.

Who can Invest in Mutual Funds?

Mutual funds are open for all. There are no hard and fast rules to follow. Unlike life insurance, where age, health and occupation are the deciding factors, mutual funds don't have any restrictions or hard norms to follow.

Mutual funds are extremely simple to participate in, once the KYC is cleared. Even people with less money can invest in mutual funds.

Mutual Fund Plans.

Mutual funds have plans for specific purposes. The three categories of investment plans are:

(1) Systematic Investment Plan (SIP).

(2) Systematic Withdrawal Plan (SWP). and 

(3) Systematic Transfer Plan (STP).

Systematic Investment Plans.

Systematic Investment Plans are good for people who don't have a lump sum amount to invest. In a Systematic Investment Plan, the investor can deposit small amounts of money on a regular frequency to make a lump sum amount over a period of time. SIP is the most affordable form of investment. Anybody who is KYC complaint, can join it. Most SIP's start with a minimum amount of Rs. 100. Mutual funds also offer lump-sum investment options under SIP. Lump sum investment in mutual funds is done by depositing a high amount. People who have surplus money can go for lump-sum investment in which the investor has only one deposit to make. For lump-sum investment, the minimum amount is usually Rs. 5,000.

Systematic Withdrawal Plans.

A systematic withdrawal plan is the opposite of Systematic Investment Plan. In this, the investor can withdraw a specific amount of money against a single, lump-sum deposit. The investor gets the set amount every month as a regular income.

Systematic Transfer Plans.

A systematic transfer plan is used when the investor wants to reinvest the money he receives through systematic withdrawal plan. This option allows the investor to start a new investment without allocating or putting additional money for the new fund.

Few Points About Mutual Funds.

The following points should be considered before investing in mutual funds.

(1) Mutual funds investments have to be done carefully. Unplanned investments could go wrong. Invest in funds by analysing its performance. See how old the fund is; see how much returns the fund has provided in the past few years. See how much asset is under management; the net asset value of the fund, the type of fund: debt fund or equity fund or hybrid fund.

(2) Money will take its own time to grow irrespective of the avenues you select. Mutual funds too take time to grow. It is a common misconception that mutual funds grow your money in less time. Maturity, to become profitable will take a longer time. The money has to be kept invested for a minimum of five consecutive years. The more time you keep your money invested, the more likely will be the growth you can expect from it.

(3) Don't invest all your money in a particular fund, even if you find it excellent. Diversify your investments. Select more funds with good performance background and invest in them rather than investing in a single fund.

(4) Always remain invested. This is what everybody interested in mutual funds should do. Investments in mutual funds should continue without stopping to make it worthwhile.

Mutual funds have always been considered risky by many. Many people are reluctant to invest in it. As stated in the disclaimer, mutual funds have risks, which is true. What people should know is that mutual funds are meant for growing investor's money. This is the only purpose and goal of mutual funds. The disclaimer is not a product feature to worry about. A lot of knowledge, patience and monitoring is required in the management of funds. Investments in mutual funds will be fruitful if done carefully and logically.

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