MUTUAL funds are investment vehicles, and you can use them to invest in asset classes such as equities or fixed income. wealth recommends that you use the mutual fund investment route rather than invest yourself, unless you have the required temperament, aptitude and technical knowledge.
If you would like to familiarise yourself with the basic concepts and workings of a mutual fund, this would be a good place to start. Just follow this simple step-by-step process.
Step 1: Understand why mutual funds are recommended We are not all investment professionals Mutual funds are like professional money managers, however a key factor in their favour is that they are more regulated and hence offer investors the ability to analyse and evaluate their track record.
Investing is becoming more complex There was a time when things were quite simple - the market went up with the arrival of the first monsoon showers and every year around Diwali. Since India started integrating with the world (with the start of the liberalisation process), complex factors such as an increase in short-term US interest rates, the collapse of the Brazilian currency or default on its debt by the Russian government, have started having an impact on the Indian stock market.
Mutual funds provide risk diversification Diversification of a portfolio is amongst the primary tenets of portfolio structuring. And a necessary one to reduce the level of risk assumed by the portfolio holder. Most of us are not necessarily well qualified to apply the theories of portfolio structuring to our holdings and hence would be better off leaving that to a professional. Mutual funds represent one such option.
