Chitra Iyer, COO & Financial Coach at MFA discussed about how are mutual funds different from other investment avenues?
The other investment avenues you have today are buying gold, buying into a property or even putting your money in your public provident fund (PPF).
In case of a mutual fund you have a fund manager who is a professional, who is taking all these investment decisions on your behalf. This is not the case with the other mentioned asset decisions that you take.
In case of the other – say a PPF, fixed deposit (FD) or a real estate investment the kind of returns that you can see are nearly guaranteed. A PPF or an FD you know the kind of return you are going to get and make eventually out of that whereas in a mutual fund this is completely linked to the investments made by the fund in the markets. Therefore, they are capable of fluctuating and they do fluctuate based on what happens in the market.
The other thing is the amount of risk that you are taking on a mutual fund. Since it is based on the investments made by the fund in the markets the risk level also fluctuates; it could be very risky or not so risky. Whereas when you are buying a property you know the level of risk there; it could be huge again. However, in case of a PPF or an FD you are relatively assured that there is hardly any risk there. So, these are essentially the differences between all the other kind of investments and mutual fund.