Investors after saving their hard earned money, often go for the safest and risk-free financial instruments and fixed deposits (FD) is one of them because it is highly unlikely that you will lose your money. However, with other factors at play, for example- Inflation, Taxes, do FDs fetch you enough returns in your pocket? For example-You invest Rs. 5,000 in an FD for five years at an interest rate of 8% compounded every quarter. After five years, the maturity value is Rs 7429.
However, with an inflation rate of 5.21%, the purchasing power of 5,000 rupees has fallen.
Did you ever think of investing in a financial instrument that can give you great returns without extra charges? Yes we are talking of mutual funds! Mutual Funds are a considerably secure investment option that can help grow your money in the days to come. In a mutual fund scheme, money from various investors are pooled together and invested in a portfolio of instruments. A mutual fund may invest only in equities or debt instruments or a mixture of both, called balanced funds.
Mutual Funds is a wide subject and there are more than 10000 schemes & plans of Mutual Funds. Hence, the investors surely need expert guidance and that’s where the advisors role come into play. A Mutual Fund advisor offers advice on identifying your investment goals, picking the right funds as per your plans, an effective means of diversification of your investments. These advisors have expertise to study the markets in depth. As mutual funds have a bit of risk, so these advisors can provide the best suitable portfolio on the basis of your risk tolerance.
However all Mutual Fund schemes do not carry the same risk when it comes to returns on investment. If we talk about Equity scheme, it has the potential to deliver huge returns over the long term that can create wealth. Remember, inflation is a risk, and equities are the best asset class to beat inflation.
Investing in mutual fund or buying a stock?
Since a mutual fund provides exposure to hundreds or thousands of stocks, you don’t need to buy hundreds or thousands of stocks on your own, which could prevent you if you have a smaller-sized investment account and limited capital to invest with.
One can invest in mutual fund as Lump sum or SIP. A lump sum investment can result in higher returns due to its compounding nature. By following the SIP route, you will invest in the markets during higher levels as well as lower levels as per your choice over a period of time.
However, you can consider investing in the mutual fund schemes for a handsome return which can go beyond your expectation only if you can invest for long term.
Want to know the power of compounding?
Let’s take an example- Suppose you invest Rs 1 lakh for 5 years and the annual return from the fund is 20%, that would be around Rs 2, 48,000. The maturity will increase to huge extent with the increase in lump sum investment.
Let’s take another example- you invest in a SIP plan @15%, your monthly SIP of Rs 8,000 would fetch Rs22, 30,000 after 10 years.
However investing in any mutual fund scheme is not that easy as risk is huge as well. Mutual fund advisors help investors diversify their risks by investing in a diversified portfolio of stocks with various sectors. Moreover the liquidity of fund is high also.
What else can an advisor do for you?
Advisors also bring to the table that much-needed degree of dedication and grip when the question is about how to effectively manage a collective bundle of various investors. They utilize their years’ worth of knowledge with full-time dedication and attention.