A mutual fund is a Company or corporation that collects money from multiple investors and invests that money in stocks, bonds, and short-term market instruments. A Professional specialist known as a fund manager or portfolio manager oversees this pool of funds. It is his/her responsibility to invest the funds in various securities such as bonds, stocks, gold, and other assets in order to maximise profits or wealth creation.
Mutual Fund provides a lot of salient features to the investors. Some are given below such as –
- Simplicity : In today digital era , buying a mutual fund unit is simple and easy Process by just of many user friendly Applications.
- Liquidity : Mutual Fund Investor can easily redeem or sale their units at any time at Prevailing NAV (Net Asset Value). Investors can easily convert their units into Money.
- Professional Management : The Investors money is managed by a professional Persons such as CA, CFA or MBA (Finance) etc. These Professional have deep and analytical skills to select the fund in which he or she wants to invest. So Mutual Fund Investor are less to risk related to technical or analytical Skills.
- Average cost Benefit or (Economy of Scale) :- By Investing money through SIP can give benefit to investors as an average cost Benefits because by investing through SIP , Investor can select SIP as monthly , quarterly or yearly basis it give average cost benefit by investing in equal intervals.
- Diversification: It is also a business or investing strategy to diversify or distribute their money into many Mutual fund Schemes to different types or segments to companies. If one company does not perform as per investor expectation then risk is also mitigate by diversifying.
- Tax Benefit: If any investor buy Tax Mutual Fund Scheme are commonly known as
ELSS (Equity Linked Saving Schemes). It can provide Deduction under Section 80C of Income Tax, Act 1961.
Different Types of Mutual Funds :-
Mutual funds are divided into numerous categories based on the mutual fund scheme’s goal. These plans are tailored to meet the demands of many types of investors, including risk averse, moderate, and aggressive investors.
Mutual funds are divided into five categories, as listed below:
1. Equity Schemes – In that Scheme , major portion of money is investing into stock of large cap 100 , mid cap or small cap etc.
2. Debt Schemes – Fixed income instruments such as bonds and Treasury bills are the primary investments of this mutual fund schemes.
3. Hybrid Schemes – It is a combination of two or more class of asset such as Stock and debt funds.
4. Solution oriented Schemes – Mutual fund schemes that invest according to an individual’s goals, such as retirement, child education planning, marriage, foreign travels, home purchasing, and so on.
5. Others Schemes – These types of Mutual Fund Schemes are designed to keep in mind like Tax Saving Mutual Funds and others.
Solution of Financial Independence – Mutual Fund
Financial independence mean your income are sufficient to cover basic or personal requirements and your money are sufficient to cover unanticipated future loss.
The primary goal of working is to earn money to cover our living expenses, such as food, rent, EMIs, utility bills, and children’s school fees. Financial independence entails being able to meet your financial obligations without having to work.
Whether you work or operate a business, financial independence is important to everyone. If you work, there will come a time when you will retire. You will have no income in the form of a salary once you retire, therefore you will have to be financially self-sufficient. You will still be responsible for paying your expenses. There may be times when your business income is less than your expenses if you are a business owner. These intervals might be brief or lengthy. Unless you are financially self-sufficient, you will have to delve into your funds.
If your income is insufficient to cover your expenses, you will have to rely on others, such as your children or relatives. However, you should assess whether the person you are relying on is financially capable of supporting you and for how long. You can pay for your living expenses with your savings, but you risk depleting your savings and losing your financial independence over time. Remember that your expenses will continue to rise due to inflation, whereas if you live off your savings, your savings will deplete with time.
If the returns on your assets are adequate to cover all of your costs for the rest of your life, you will be financially independent. It’s critical to remember that assets are investments that can create future cash flows in the form of either regular income or capital appreciation. Electronic devices, watches, jewellery, personal automobiles, and other items that do not create cash flows and decrease in value over time are not considered assets in the strictest sense. Assets include bank fixed deposits, stocks, bonds, and mutual funds, which generate returns in the form of interest, dividends, and possible capital appreciation. You will be financially independent if the profits on your investments are sufficient to cover your costs after accounting for inflation.
Making preparations for financial independence :-
- Start Early: – It is important to begin saving at an early age. Time is one of the most significant aspects in wealth growth. Over time, investments pay off, and returns invested pay off even more. This is referred to as compounding power.
- Start Saving: – You must save in order to invest in assets that will provide you with a profit. “Do not save what is left after spending, but spend what is left after saving,” Warren Buffet, a well-known investor, once stated. If you want to achieve financial independence, you must put savings first.
- Investing Your Money Wisely: You should put your money into assets that will pay you back. The risk/return characteristics of various asset classes varies. You must invest in the appropriate asset class for your age and risk tolerance. Equity is the most ideal asset class for wealth accumulation over extended investment horizons for younger investors.
- Remained Discipline: Investment discipline refers to sticking to a plan (financial plan) that is designed to help you achieve your financial goals while balancing risk and reward (asset allocation). You should adhere to your plan and avoid making rash judgments based on emotions.
What role do mutual funds play in this regards?
- Investor can start investing in mutual funds from your regular savings through Systematic Investment Plans (SIP). It also gives average cost benefit and compounding effect over a period of time.
- They provide Risk diversification by investing in different segments of industries and money is also managed by a professional person.
- Mutual funds have a wide range of products to suit various risk appetites and investment requirements. You should spend your money on a product that is right for you.
- For long-term investing, mutual funds are one of the most tax-efficient options. Long-term capital gains in equities funds are tax-free up to Rs 1 lakh, after which they are taxed at 10%.
- By investing in Solution oriented schemes it provide a basic goal oriented as per individual need such as retirement plan, marriage and education planning etc.
Mutual funds are to be labelled according to the level of risk involved, as per SEBI requirements, and the same is to be shown on a metre known as the risk-o-meter. The following are the different levels of risk-o-meter:
- Low – Investors money i.e. Principal at a very low risk
- Low to Moderate – Principal invested is moderately low risk
- Moderate – Principal invested at a moderated risk
- Moderately High – Principal invested at a High moderate risk
- High – It involve a high Principal risk
- Very High – Your money i.e. Principal is a very high risk.
How to avoid Investment Fraud
1. Investors should not rely on third party data i.e. unauthorised agent or someone else.
2. Before investing, Investors should found out the relevant financial statements of mutual fund through official website of SEBI or that mutual funds.
3. Investors should read the scheme documents very carefully before investing.
4. Investors should aware of pros and cons of Mutual fund schemes.
5. Investors should not share his personal information i.e. OTP, PIN, CVV etc. to someone else.
6. Investors should attend seminars or workshops related to investment decisions.
Conclusion:
Investors should invest some portion of income to Mutual fund or any other investment as per Investors requirement to save from uncertainty in life and become financial independence at early age.
Mutual Fund – A better way of Investment
Mutual funds are subjects to market risk!!
Author Bio
“LGF INVEST is an investment platform that offers curated investment opportunities in Finance and Real Estate with low investment and fixed returns.Enjoy a fully online investment experience with deal discovery, payments, KYC, documentation and portfolio management done securely and in partnership with best-in-class partners.
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