Mutual fund: Your partner in the journey from savings to wealth creation
Mutual fund channelizes your savings into investments that create wealth in the long term.
Roti- kapada- makaan (food-clothing-shelter) are our basic needs. But, we seldom cater to our needs all by ourselves - growing our food, stitching our clothes or building our houses. Instead, we hire experts – farmers, tailors and property developers, respectively. Similarly, a mutual fund is our buddy when it comes to the world of investments.Mutual fund is a body of professionals that pools in money from many investors to invest across asset classes such as stocks, bond, and gold.
Financial markets are dynamic and there are many factors that affect the prices of shares and bonds. Not many individuals possess the skill-set to invest across asset classes. Even if one has a good understanding of financial markets, he may not have time to devote to investment activities. In such circumstances, mutual funds come to our help.
Mutual funds offer an easy to use and investor friendly solution to invest in financial markets. Ensuring the protection of investors’ interest is the responsibility of the sponsor, who registers the trust and appoints the trustees. Asset management company (AMC) is brought in by trustees. Investment management is done by AMC. Securities bought by AMC are held by custodian, who is an independent entity. Maintaining investors’ records and servicing them is the responsibility of Registrar & Transfer Agent, popularly known as RTA. Look at the below illustration for better understanding of how mutual funds work.
The AMC launches various schemes with varying investment objectives. For example, some schemes invest only in shares, some invest only in bonds whereas some other invest in both. Mutual fund reaches out to the investors with these schemes and investors tap the right schemes as per their financial needs. Investors are allotted units that define their share in the pooled money. The money is invested as per the investment objectives of schemes launched by the mutual fund. Though mutual funds are meant to attract long term savings from investors, they maintain the highest level of transparency by declaring the net asset value of their schemes on daily basis. Put simply, net asset value is a number that represents the value of the unit. It is the price at which mutual funds are bought and sold and calculated as the value of the total asset holdings to the overall outstanding units in that particular scheme. In the long term, the schemes are expected to make money for the investors.
Of course, nothing comes free in this world. Mutual funds too charge for their services. They take out a small fraction of money invested in scheme at regular interval. As their remuneration is expressed as a percentage of money managed – the expense ratio, their interest is aligned with investors’ interests. If investors make money and remain invested in the scheme, the mutual fund gets paid for longer period of time. But if the mutual fund does not deliver and investor walks out with his money, the mutual fund can’t charge the investor. It is also one of the most regulated products within the Indian financial services industry.
Due to investor-focussed approach, mutual funds are a popular investment vehicle worldwide. In India too, they cater to millions of investors. Each investor may have different financial goals in mind – buying a home, funding retirement, buying a car, funding daughter’s education& marriage. Mutual funds offer you various options to invest your savings as per your convenience over your working life. With mutual funds, you can also invest small using SIPs or Systematic Investment Plan and achieve your dreams!
So what are you waiting for? Go ahead and select mutual funds based on your financial needs and risk profile. And stay calm through your investment journey to achieve your life goals with ease!