Categories: Mutual Funds

Mutual fund as an Investment Option

One of the best ways to ensure that you reduce the risk associated with your investment portfolio is through diversification across various asset classes. The percentage of investment in various asset classes will depend on your individual goals, risk appetite and time horizon for your investment.
Mutual funds are one of the most preferred investment options to investors who are wanting to invest in equity as they offer diversification and offset the risks.

Let us look into “What are Mutual Funds?”

Investing in Mutual funds is the easiest means to grow your wealth. Mutual funds are formed when the capital is collected from different investors and then investing the collected capital in different market securities to earn the highest returns.

Investors will pool their money through the registered firm, then the fund manager will invest the money in different securities and the generated returns will be given back to the Investors.

The mutual funds in India are structured into 3 parts:

Sponsor
Trust
AMC (Asset Management Company)

The sponsor is “a firm” or “an organization” which has the interest to set up the mutual fund. And this firm will set up a “Trust” and an “AMC”.
The money collected from the various investors belongs to a trust and the sponsor will appoint a trustee who is the custodian of the investor’s money.
Then comes AMC. This is a firm that manages the money and charges a fee. And AMC will plan and launch the scheme. The investors have to choose a scheme that matches their investment objective.

Are they safe?

Yes, your money will be safe from the risk of fraud and the sponsor cannot run away with it.
After many stock market scams (Eg. Harshad Mehta stock scam), many strict rules were imposed on financial products. Then, later in 1993, the Mutual Fund industry got liberalized and the rules for entry of the private sector were made strict. It ensured that the sponsors and AMC can’t run away with the investor’s money. Thus, your money is safe.

Remember your investments will have an impact on market changes. Mutual Funds are market-linked products where “prices” will be affected due to market fluctuations. There has been a big hit on “Unit 64” which is a UTI product (Unit Trust of India) where they don’t want to follow the SEBI rules on mutual funds and when the case was resolved it was discovered that there were huge loses that has been hidden.

This is why people resist themselves from investing in mutual funds. But, then SEBI has come with an ordinance stating that- in case of “breach of trust”, the beneficiaries will have the right to take legal actions against the trustee and the trustee’s personal assets will be attached to compensate beneficiaries, later the trustees will be jailed.
Each time there has been a blowout in the Mutual Fund industry, then again the SEBI has come up with the strict rules to make it safe for the investors to invest in the stock market.

Still hesitant to invest in Mutual Funds! Don’t be because with Fisdom is 100% safe and secured.