Investing in Mutual Funds

Investing in Mutual Funds

Many people ask me that, Why Should I Invest in Mutual Funds? Well, this is a right question. Why should anyone divert his/her money to some one else (Fund Manager)? And what happens if something goes wrong with the mutual funds?

This is the commonest question among Indian Investors. Most of the people in India still don’t trust on Mutual Funds. They think that one single morning they will wake up and what if the mutual funds will fly away with their money? Well, I want to say these people that, Indian Mutual Fund Industry is highly regulated industry by SEBI & RBI and it’s not possible that someone will fly away with your money.

What are the Advantages of Investing in Mutual Funds?

Well, not the everyone is expert in investing in the stock market. And it is also quiet possible that if you are the expert in stock market investing, you don’t have enough time from your job or a business to analyze all the stocks and it’s quarterly results.

Mutual Funds do all of these jobs on behalf of you. A Mutual Fund has a Fund Manager and a team of research analysts (Technical & Fundamental). And the Fund Manager will do all of this job on behalf of you for a yearly expense of around 1.5%. So What you can do is, you can simply divert your money towards the fund manager and enjoy the superior returns.

Mutual Funds are for 2 types of Investors.

01) People who don’t have time to manage their money &
02) People who don’t know anything about investing in the stock market.

If you fall under any one or both of the above categories, you should invest in mutual funds rather than direct investing.

What are the Disadvantages of Mutual Funds?

Well, the only disadvantage of mutual fund is that, Fund Management and administrative charges which is usually 1.5% per Annum. In case of Index funds it’s little bit lower. So if you are the Sophisticated Investor and willing to invest your time to analyze the stock market investments than the mutual funds are not for you.

If you are willing to learn how to invest in the stock market than you should go for it rather than investing in mutual funds.

How to Select Mutual Funds?

Well, there are so many mutual funds available in the market that selecting a mutual fund itself is a job. The simple way to select the mutual funds is to check it’s star rating from reputed fund rating agencies. I recommend Valueresearchonline.com & MutualFundsIndia.com for star rating.

Equity Diversified (Vanilla) Versus Sector Funds -

Another question is that, weather to invest in Diversified mutual funds or in Sector Mutual Funds? Well, in my opinion, any portfolio’s core funds should be diversified mutual funds. This is because sector funds are on the two extremes. They can be either on the top performing funds of the year or they can be at the bottom. While it is next to impossible to go something wrong with the Sector Mutual Funds.

Thus, Investing in Mutual Funds is an Art and you should Master this Art.