We all incur expenses in our lives from payment of electric, phone and grocery bills for buying a house or car, education and marriage of children, retirement funds, health care funds etc.. The kind of expenses we have in our daily lives are easy to handle but long term financial responsibilities like your child's higher education and marriage or health care plans when you retire need careful planning. These can not be met from monthly allowances alone ; rather you need proper savings and investment plans to increase your savings. One very easy and safe way to invest and earn high returns is through mutual funds.
Some benefits of investing in mutual funds are :.
* Reduced risk - They help to minimize risks as they allow you to diversify your investments. Diversification means to invest in different assets instead of one so that loss incurred in one can be balanced by high profits gained in another.
* Professional management - Your funds and investments are managed by professionals who are veterans in the field and have the expertise to earn high returns for you.
* Liquidity - It can be bought and sold easily to get your hand on liquid funds in case of need.
Let's discuss types of mutual funds available in India (based on structure wise classification) :.
* Equity schemes invest maximum part of the funds into equity holdings. They include diversified, mid-cap, sector specific and tax saving schemes - HDFC Equity fund (mid-cap), Franklin India Blue chip (open ended equity fund), HDFC Tax saver etc.
* Debt Funds - These Funds invest in debt papers to reduce risk and provide stable income to investors. They include gilt funds, income funds, MIPs, short term plans and liquid funds - HDFC Floating Rate Income Lt, Tata Gilt Retirement280216 etc.
* Balanced funds - These are a combination of equity and debt funds - Tata Balanced, Birla Sun Life '95 etc.
When you invest in a mutual fund, you are entitled to receive profits proportionally with the amount you allocated. Here are several reasons why investing in them is a great way to save and grow your money :.
An individual investor usually puts a great amount of money in one kind of stock or instrument, which can be risky if things turn out bad for that company. So a fund lowers down that risk, and gives you exposure to a diversified portfolio ;.
* they are easy to be managed for you, as the professional manager takes care of your purchases . The managers know how to handle and care for the funds ;.
*they are easier to deal with, as you have only one portfolio to deal with instead of hundreds of stocks.
*they are liquid. This means you can pull your money out of the fund whenever you want . Depending on the fund regulation, the money can take up to 3 days until they arrive in your bank account.
*You can buy them with lower amounts. Typically a brokerage account to buy stocks requires certain minimum amounts like USD 5,000 or USD 10,000, but you can buy mutual funds for much lower amounts , like a couple of hundreds dollars.
*they are less risky than stocks, because of the diversification effect. This way, you might have access to the performance of tens or hundreds of companies that are included in the funds portfolio.
