Most of the Indians associate investing in the share market with high risks and huge losses. Although it is true that the share markets are volatile in nature and entail a certain amount of risk, but the returns on investments are also equally high. Investing in the share market is becoming increasingly important because of the rising inflation and cost of living. The interest provided by fixed deposits and savings accounts can barely keep up with the growing inflation rate. If you are risk averse and still want to reap the benefits of the share markets, investment in mutual funds is the perfect alternative for you.
A mutual fund is a collective investment instrument that pools money from several investors and invests in various market securities. To invest in a mutual fund, you need not possess extensive knowledge about the various stocks in the share market. It is managed by qualified stock market experts known as fund managers, who invest with care in order to maximize return on investments. Moreover, the risk in a mutual fund is spread across a broad array of securities from different sectors. This limits investment risk by reducing the effect of a possible decline in the value of any one of the securities. Due to this risk averting mechanism, mutual funds are considered a safe investment alternative.
Mutual fund investments in India are regulated by the Securities and Exchange Board of India (SEBI). It regulates the mutual fund houses and frames the norms and policies related to the functioning of mutual funds, thus ensuring investor’s security from frauds and embezzlements. One can easily open a mutual funds account online without any additional charges. Mutual funds in India are classified into various categories such as:-
Equity Mutual Funds: - In an equity mutual fund, a major part of the investment corpus is directed towards the equity market and the returns are subject to the market performance. Equity mutual funds generally provide you with higher returns in the long run. However, the risks are also substantially higher.
Debt Mutual Funds: - In a debt mutual funds, all your money is invested in debt instruments such as fixed income investments and Government bonds to ensure assured returns. The debt market is less volatile as compared to the equity market and entails less risk. However, the returns are also relatively low.
Balanced Mutual Funds: - Balanced mutual funds carry the benefits of both equity and debt markets. A portion of your investment is invested in both debt and equity instruments. This guarantees better returns as against debt funds and better risk management in comparison to equity funds.
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