A mutual fund is a “Pool of Investment” managed by professional fund managers. Now the question is why is it termed as a “pool of investment”? Reason being simple as it pools the money of several investors with the purpose to invest in stocks, bonds, money market instrument and other types of securities. There are different types of mutual fund schemes including open-ended fund, close-ended fund, and interval funds. These schemes are suitable for all kinds of investors whether long term or short term.
Why Choose the Mutual Fund?
Mutual fund offers various benefits to investors including:
1) Diversification: A mutual fund is the best way to diversify your risk and investment. The comprehensive research is undertaken by fund managers using fundamental and technical analysis and create a risk diversified portfolio which includes shares of various sectors such as Automobile, Oil & gas, IT and Food & Beverages etc.
2) Flexibility: Mutual fund offers systematic investment plan (SIP) and systematic withdrawal plan (SWP) which provides you with the flexibility to invest and withdraw a fixed or variable amount at regular intervals (weekly, monthly, quarterly etc.)
3) Convenience: Mutual fund offers convenience to the investors who don’t have time to watch market constantly. The asset management company invests the collected amount in various sectors which allows to reduce financial risk and increase returns. The group of professionally experienced people works in favour of your invested amount and ensure you with the best possible returns.
4) Tax Exemption: Investing in mutual funds can offer tax benefits to investors.HOW?
For example: Investing in ELSS (Equity linked saving scheme) funds can be claimed as a deduction under 80C whereas the deduction of approximately 1,50000 is allowed under the section. Tax exemption is a government initiative to encourage people to invest in mutual funds.
Trends in Mutual Fund Industry
According to the data released by ICI (Investment Company Institute), the combined assets of the nation’s mutual fund increased by 3.1% and reached to $ 19.32 trillion in Jan 2018. It has increased by $ 576.21 billion in Jan 2018.
The total amount collected through SIP during Feb 2018 is Rs 6,425 crore which is very high as compared to Feb 2017, i.e. Rs 4,050 crore (According to the data of AMFI).
This growth in mutual fund investment has primarily driven due to increasing participation of retail investors and increasing awareness campaigns for mutual funds. Let us have a look at these driving factors.
Key driving factors of the mutual fund industry
1) Increasing participation of retail investors:
There is a significant growth witnessed in the mutual fund investment by retail investors. The share of retail investors in mutual fund investment was 44.5% at the end of January 2017. This share has increased to 50.6% at the end of December 2017 (According to an article published by Dalal Street Investment Journal)
MUTUAL FUND INVESTMENT BY RETAIL INVESTORS (%)
2) Increasing awareness campaigns for mutual funds
The asset management companies and AMFI launched campaigns with the aim to educate investors about the benefits of mutual funds. For instance: SBI introduced a campaign known as “SBI Fund Guru”. The main purpose for this campaign is to reach out to a large number of investors across the country and spread awareness about the benefits of investing in the mutual funds for a long-term through radio, print and digital media of advertising.
Moreover, “Mutual Fund Sahi hai” is an initiative by AMFI (Association of Mutual Funds India) to encourage investment in mutual funds.
Apart from these driving factors, improvement in India’s economic performance and tax benefits offered by the government are also important for propelling the growth of mutual fund industry.
Hence, a mutual fund is an ideal investment option for all kinds of investors whether small or big as anyone can start their SIP with the lower amount of Rs. 500 every month. Everyone can avail the benefits of professionally managed diversified portfolio whether you invest Rs. 500 or more than 100000. It also offers tax benefits on certain equity schemes, bond schemes, dividend etc. There are unlimited advantages associated with mutual funds.
So start investing in mutual fund schemes and dream for a happy & stress-free future !!
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