Categories: Mutual Funds

The Optimistic Route: Mutual Funds

It’s all about perspective and acting on it. Almost one and a half decades ago there was this viral idea that shocked the World. No, it wasn’t reality television but the crazy concept that certain songs that are popular around the World are satanic in Nature. The most disappointing for millennials was the reverse playing, ‘Pokemon’ theme song which sounds naturally disturbing but still not alarming and one that could be ignored as a coincidence.

But then we heard Satanic interpretations of a rock ballet which is one of the best songs ever written or performed sounding like a hymn for the Devil when played in reverse. It was the Stairway to Heaven by Led Zeppelin. It’s still a matter of perception. The pessimistic mind will see the Devil hidden within insidious rock music whereas the fairly optimistic person can see that good and bad simply co-exist in reality.

So, how is it related to mutual funds? Mutual funds are all about the balancing act to sustain continuous and sufficient ROI (Return on Investment) throughout your ownership of that plan. It is all about staying optimistic, even through obstacles that may test your patience in the market at the time.

Why invest in mutual funds?

You can Choose Your Risk Appetite:

In the case of mutual funds, people might feel like they are diving into a pool with crocodiles of the market observing from a distance. You can ignore all those crocodiles unless you are a Crocodile Dundee investor: The ones who have a high-risk appetite.

Diversity:

Mutual funds include investment in Gold and real estate, based on the predictions made by fund managers on what the money should be invested in. So, it’s a mixture of both stable investments such as Gold or equities which are based on the stock market performance. Having your eggs in multiple baskets has always been a good idea to play safe and at the same time learn from your experiences.

Equity investment through Mutual Funds:

They are professionally managed by expert professionals and spend quality time in researching about the future performance of companies. Not only do investors get an exposure to various stocks when in an equity mutual fund scheme but they offer people an opportunity to redeem their investments at any time (Except for Equity Linked Saving Schemes-‘ELSS’ which has a lock-in period of just 3 years with great tax benefits). Equity mutual fund schemes avail you a facility to invest small sums at regular intervals through systematic investment plans (SIP).

Compounding:

Mutual funds keep earning more through the compounding strategy especially with SIPs. Regardless of what the amount of your SIP investment is every month, it keeps on adding to the last month’s principal and earnings which means that it allows you to earn interest on your principal always.

Besides the market risk, is my money safe and secured with mutual funds?

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. 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.