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Mutual Fund and other Investment Avenues | Alevant Shoppe
Mutual Funds

Mutual Funds

CONCEPT OF MUTUAL FUND

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.

PROS & CONS of INVESTING IN MUTUAL FUND

  • Portfolio Diversification:
    Mutual funds normally invest in a well – diversified portfolio or securities. Each investor in a fund is a part owner of all the fund’s assets. This enables him to hold a diversified investment portfolio even with a small amount of investment that would otherwise require big capital.
  • Professional Management
    Even if an investor has a big amount of capital available to him, he benefits from professional management skills brought in by the fund in the management of the investor’s portfolio. The investment management skills, along with the needed research into available investment options ensure much better return than what an investor can manage his own. Few investors have the skills and resources of their own to succeed in today’s fast-moving, global and sophisticated markets,
  • Reduction / Diversification of risk
    An investor in a mutual fund acquires a diversified portfolio, no matter how small his investment. Diversification reduces the risk of loss, as compared to investing directly in one or two shares or debentures or other instruments. When an investor invests directly, all the risk of potential loss is all his own. A fund investor also reduces his risk in another way. While investing in the pool of funds with other investors, any loss on one or two securities is also shared with other investors. This risk reduction is one of the most important benefits of a collective investment vehicle like the mutual fund.
  • Reduction of transaction costs
    What is true of risk is also true of the transaction costs. A direct investor bears all the costs of investing such a brokerage or custody of securities. When going through a fund, he has the benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit passed on to its investors.
  • Liquidity
    Often, investors hold shares or bonds they cannot directly, easily and quickly sell. Investment in Mutual Fund, on the other hand, is more liquid. An investor can liquidate the investment, by selling the units to the fund if open-end, or selling them in the market if the fund is closed-end, and collect funds at the end of a period specified by the mutual funds or the stock market.
  • Convenience & Flexibility
    Mutual fund management companies offer many investor services that a direct market investor cannot get. Investors can easily transfer their holdings from one scheme to the other; get updated market information and so on. Moreover, Mutual Funds offer multiple schemes allow investors to switch easily between various schemes. This flexibility gives the investor a convenient way to change the mix of his portfolio over time.
  • Affordability
    A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This amount today would get you less than quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.
    Disadvantage of Mutual Funds:
    1. No control over cost
    2. Tailor made portfolios

Mutual Fund v/s Other Investment Avenues

Mutual Funds
  • Company Fixed Deposits v/s mutual fund :
    A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This amount today would get you less than quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.
  • Bank Fixed deposits v/s mutual fund:
    Bank Fixed deposits are similar to company fixed deposits excepting that the Bank FD’s are more safe and chances of default are very less. Banks operate under stringent requirements regarding Statutory Liquidity Ration (SLR) and Cash Reserve Ratio (CRR). Further, Deposit Insurance and Credit Guarantee Corporation (DICGC) protect bank deposits.
  • Bonds and Debentures v/s Mutual fund:
    • Credit rating of a bond is an indication of the inherent default risk in the investment. However unlike fixed deposits, bonds and debentures are transferable securities.
    • If security does not get traded in the market, then the liquidity remains on paper. In this respect an open-end mutual fund scheme offering continuous sale / repurchase option is superior.
    • There could be capital gain / capital loss to investor incase of an early exit, because the investment is subject to market risk. This is normally less in Mutual fund as the investment is made in basket of funds and hence your investment gets diversified.
  • Equity v/s Mutual fund:
    • It is not possible for a common man to lay his hands on all that information needed to make an equity investment. Mutual fund handled by professionals make prudent investment decisions.
    • Mutual fund investment offers diversification irrespective of the size of investment. Individual investor investing in equity scheme may not have this advantage especially if he does not have that sort of investible funds.
  • Life insurance v/s Mutual Fund:
    • Life insurance is hedge against risk – and not really an investment option.
    • But occasionally, on account of mis-pricing of products in India, life insurance products have offered a return that is higher than a comparable “safe” fixed return security – thus, you are effectively paid for getting insured.

Power of Systematic Investments (SIP)

Systematic Investment Plan (SIP) is a smart financial planning tool that helps you to create wealth, by investing small sums of money every month.

  • Averaging of investments reduce risks.
  • Can be started with small amounts.
  • Timing on long term basis optimized.
  • Long term goals are easily achievable.

Magic of Compounding

  • Rs 10,000/- invested every month for 10 years at 12% compound interest rate becomes Rs. 23, 23, 390.76/-.
  • Rs. 25000/- invested monthly for 10 years become Rs. 58, 08, 476.91/-.
  • You can use long term investments to achieve financial goals, such as becoming a millionaire, retiring comfortably, or being financially independent.

MUTUAL FUND SERVICES FROM ALEVANT

Alevant offers personalized mutual fund investment advice, tailored to the investment needs of HNIs and Retail Investors through a disciplined investment process. Backed by our strong research and rich experience in this field we help clients in systematic allocation of assets across the risk return curve. We build up model portfolios for the clients, transacting and executing on their behalf, with a view to manage and enhance their wealth by diversifying the portfolio across different asset class within the mutual fund space.