Ever had a slice pizza because you were not hungry enough for a whole pizza? Investing in mutual funds is a bit like that. If you do not have the risk appetite for equities as an asset class, and are not confident of buying individual stocks in your portfolio, you can opt for mutual funds.
A mutual fund is a market instrument that pools in money from several investors and invests their funds in stocks, bonds and money market instruments.
A company managing several mutual fund schemes is called an Asset Management Company (AMC) and is closely watched and regulated by the Securities and Exchange Board of India (Sebi) and they must all comply with a strict set of norms that have been designed to protect investors.
While choosing a mutual fund scheme, you need check out the prospectus of the fund which gives you information about
|Objective of fund||What instrument it will invest in|
|Equity fund||Stocks of several companies|
|Debt or Income fund||In fixed income securities|
|Gilt or Money Market fund||Largely in government securities in short term money market instruments|
|Balanced fund (to achieve balance between risk and returns)||Partly in equities and partly in debt instruments|
Let us understand why you need to invest in mutual funds with the help of some examples
Let’s say your current monthly expenses are Rs 30,000 per month currently. To maintain the same standard of living you would require Rs 80,000 only 20 years down to line.
Individualised real growth for bank FDS & BSE Sensex calculated for each year. Post this CAGR calculated for the same. Hence the real growth of FDs & Sensex is not equal to the growth minus WPI Inflation
|BSE SENSEX Scenario A||BSE SENSEX Scenario B|
|Number of years||15||20|
|Monthly investment||Rs 5000||Rs 5000|
|Total Investment||Rs 9 lakh||Rs 12 lakh|
|Total corpus||Rs 45.96 lakhs||Rs 1.17 crore|