Why You Should Invest in Mutual Funds and how much it is beneficial

Investment in Mutual Funds is usually seen as a lay investor’s recourse. "If you do not know much about stocks, invest in mutual funds. They are safe and assure guaranteed returns" is the general misconception. In fact, mutual funds are an essential component of a well-diversified portfolio. Even large investors allocate their funds over different opportunities like equities, deposits, debt instruments and of course mutual funds. Careful mutual fund analysis shows that the mutual funds can yield attractive returns. Additionally certain mutual funds offer tax benefits.



Mechanism



The simple mechanism of mutual fund is this; funds collected from a large number of investors are deployed collectively in stocks, debt instruments other mutual funds. The objectives of a fund are drawn up and stated in the prospectus. The mutual funds are registered with the SEBI (Securities and Exchange Board of India.) Experienced financial managers oversee the mutual fund investment. The profits are distributed as dividends to investors, periodically. Net Asset Value (NAV) of a Mutual fund is just an indicator of the performance; it should not be confused to be a tradable commodity like a share.



Options



There are many types of funds available today. Lump sum one time investment and systematic investment plans (just like a recurring deposit) are the basic types. mutual fund analysis preferably with the share broker can point in the right direction. Depending upon the capability and future plans, an investor can choose the plan. For example, a salaried employee may opt for monthly installments. Some funds allow this amount to vary from month to month. Mutual Funds dedicated to particular sector are also available.



NRIs



NRIs also can invest in mutual funds. They can repatriate the returns after meeting certain conditions. Investors should checkout the charges and redemption policies for the specific fund, because these keep varying from time to time.