Investing in capital market instruments can be both lucrative and risky. Asian stock markets have been returning h andsome profits to investors, and Indian exchanges are leading the way. To gainfrom this ongoing bonanza, you have two options; one that involves a high risk of placing money in separate capital market products like shares and debentures, or the second that entails lesser risk with money invested in a mutual fund scheme. What is smarter – owning shares of a few large-cap/ mid-cap companies or betting on a mix where a loss in one can be more than compensated by a gain in other?
A mutual fund cautiously places money of investors in a portfolio that will have a range of capital market products, from debt to equity, besides a variation in terms of large-cap, mid-cap or small-cap exchange-listed companies. This diversification not only allows an upturn in wealth when some participant scrip gains, but also guards investors against placing all eggs in one basket.
Mutual funds are run by professionals and the team h andling the task can make more prudent and informed decisions in contrast to individual investors who tradewith limited knowledge to supplement their income from other sources. Today, Systematic Investment Plans or SIPs have emerged as one of the most affordable and hassle-free instruments where you can gain from the bullish market by investing a pre-determined small amount at regular intervals. SIPs have made mutual fund investments all the more accessible and relaxed.
Having realized the necessity to place money in the capital market than opting for traditional options (bank fixed deposits) (Also read: Are fixed deposit your safest bet?), the next step is to pick a fund that suits your need. SBI, HDFC, ICICI, L&T and Aditya Birla Sun Life have all set up their mutual funds. But not all have similar investment strategy whichechoes in the gains made by individuals who collectively make the fund what it is by contributing money in small parts. To ease the job for investors, credit rating agencies provide lists where funds are ranked according to their performances. Nevertheless, some crucial points must be remembered.
Also read: Alternatives to fixed deposits in India
Equities may be riskier, but they possess the power to grow the investment many-fold. Mid-caps that double investors’ money in a few months are a common spectacle. Debt instruments on the other h and provide fixed return and are conservative investors’ favored bet. What mutual funds do is they add to the portfolio some equity and some debt, in unequal proportions, with the aim of growing shareholders’ value in the long-run. A mutual fund can have a scheme where 70 percent of the accumulated fundis placed in equity while in another scheme this portion can be in debentures.
For an aggressive investor, a high-risk scheme with more equity exposure can be the choice;while for moderate, a blend of equity and debt can be the product. In the end, leave it to the fund manager to deliver good returns since mutual funds as investment choice means trust.
Also read: The Guide to Investing In Gold
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