The enthusiasm and participation of retail investors have increased the number of mutual fund portfolios to grow by 95 lakhs in the first 8 months of the current fiscal and to an all-time record high of 6.5 crore at the end of November 2017. These numbers indicate that more and more people have started preferring mutual funds as a mode of investment.
Why are people moving towards this investment vehicle?
People are moving towards mutual funds as there is a sharp correction in the market and interest rates of deposits have been lowered down after the demonetization. The growing participation of retail investors, especially from small towns, have contributed to the upside. As compared to stock markets (which are traditionally considered risky for the moderate investor), investing in mutual fundsalign with the moderate risk appetite of a vast majority of middle-class investors.
What are the benefits of investing in mutual funds?’
1 – Disciplined way of investment
Mutual Funds are a disciplined way of entering the stock market without extreme aggression. People who don’t want to take a risk, or have a low-risk appetite, can invest in the mutual funds using an SIP. The good news here is that the amount of SIP can be as low as Rs. 500.
2 – Simplicity
The equity and commodity markets require investors to understand the financial jargons, but mutual funds are simple to invest. It requires no experience of analyzing financial statements or keeping tabs on the market movement. Yes! There are quite a few things that an investor needs to research before investing in this market, but these are simpler as compared to other financial products.
3 – Easy to buy
Another benefit is that mutual funds are easily accessible. One can buy it from the brokerage firms, banks, and insurance companies. Even mutual fund advisory services are offered by the experts.
4 – Different types of mutual funds
There are different types of mutual funds available in the market, depending upon the risk appetite. The investor can either invest in equity mutual fund, debt mutual fund, balanced mutual fund, or gold mutual fund. However, it is a smart trick to diversify your mutual fund portfolio to get the yields that you are expecting.
6 – Investing in mutual funds offers better returns
Blame it on the demonetization drive or the relentless campaigns to generate awareness among the people, more and more investors are investing their money in mutual funds, as they offer better returns as compared to other forms of investment. The risk-conscious investor prefers to buy large cap mutual funds, while the aggressive investor tends to buy small cap and mid cap mutual funds to get better returns.
People instinctively believe that “if we buy from the big corporate house or a big retail shop, they will provide us with better goods or services”. But this logic is not always correct. A lot of investors are under a misconception that the size of mutual funds is important. However, a better track record is more important than the size. Exercise caution about which funds you pick and get expert assistance if needed.