With mutual funds, you can take exposure to equity markets (both domestic and foreign), debt investments, gold and now even real estate and at the same time have your money managed by professional managers.
You do not need big upfront amount to start investments. You can start small with even as low as Rs 500 per month. You do not need any special investment expertise. You can leave everything to the fund manager.
Many of us are concerned about volatility with equity mutual fund investments. However, empirical evidence suggests that the longer you hold your investments, the less likely are you to incur losses with equity investments.
It is important to start early even if you can invest just Rs. 500-1000 a month. With mutual funds, you can also invest through SIPs (Systematic Investment Plan). A SIP saves you the effort of trying to time the market. And the good part is that you can start SIP with as low as Rs. 500-1,000 per month.
You need to follow the simple advice.
- Set your goals.
- Pick up equity funds for long term goals (equity heavy portfolio) and debt funds for short term goals.
- Focus on asset allocation. Review and re-balance at regular intervals.
You just need to select the right kind of funds for you. You can do it yourself or do it with the help of a MF distributor or a SEBI RIA.
That’s it.
Sounds simple, right?
What has the problem been?
Unfortunately, the penetration of mutual funds in India is low, at least as compared to other economies. Indians have tended to keep disproportionately large amounts of money in fixed deposits.
A fixed deposit can be a good debt product for the short term. However, keeping money in bank fixed deposits for 30 years (by rolling over) may not be the wisest thing to do.
For many of us, mutual funds mean equity mutual funds. And equity markets are volatile. If you invest in equity funds for the short term, there are chances that you will leave disappointed (and may not come back).
Many are not aware that you can even make less volatile (and better tax-efficient) debt investments too through mutual funds.
It is good to have so many options in mutual funds. But these options or variants are no use until investors are aware.
Awareness is extremely important.
Focus has to be on investor education
Recently, AMFI started with its Mutual Fund Sahi Hai campaign.
Many AMCs have also started working actively in this direction. Reliance AMC has started with its Mutual Fund Day and Fund for a Friend campaign.
The idea behind Mutual Fund Day (celebrated on 7th of every month) is that investors should give as importance to their MF investments as they give to their utility bills, EMIs, child education fees and other expenses. We don’t miss out on paying such bills, do we?
Fund For A Friend
In Fund for a Friend campaign, you don’t really fund for a friend. So, don’t worry about parting with your hard-earned money. Third party investments are not allowed in mutual funds. However, you can help him/her start in mutual funds.
If you want any of your friends/family member to start investing in mutual funds, you need to answer a few questions on his/her behalf and you will get an idea about his risk profile and the type of investments he should start with.
Many such initiatives from both industry bodies such as AMFI and individual AMCs are needed to increase the penetration of mutual funds in India.
23 thoughts on “Why I prefer Mutual Funds over other investments?”
Hi, very informative article.
I am a prospective investor and was looking for profitable options to invest. I wanted your views about Every investment has two sides to it, Risk and Return?
Hi Pankaj,
That’s the way it is. Risk and reward go hand in hand.
You need to see for yourself the level of risk you can take and how much risk you should take.
Will depend on your risk appetite and investment horizon.
Just a correction, you can start as low as Rs. 100 in Reliance Mutual Funds. I have SIP’s in Reliance MF from 2008 for rs 100 and my investment is more than doubled.
Thanks Sarang for the input!!!
Another advantage of mutual funds is the ability to get in and out with relative ease. In general, you are able to sell your mutual funds in a short period of time without there being much difference between the sale price and the most current market value.
Difference between sale price and current market value? What do you mean, Rishika?
Thanks Deepesh for the very good artical/information, please suggest me
my Age 35, owned home, No Loan.
below 19K SIP investing (since 2010 and some started in 2014)
6k (sector fund) – 2k reliance pharma + 2k Reliance Banking + 2k IcICI Technology
5k (ELSS) – 2k Axis Long term + 2k Reliance tax saver + 1k DSPBR Tax saver
2k (balance) – 2k icici Balanced fund
2k (gold) – 2k Reliance Gold Saving Fund
2k (Diverified) – 1k icici discovery fund + 1k Reliance Equity Opportunity
1k (Large cap) – 1k ICICI Focused Bluechip
1k (Divident) – 1k ICICI Dividend YieldnEq. Fund
FD – 5Lac(renew every time)
EPF – 80K/year(my+employer contribution)
PPF – 60k/year
RD – 5K/month
Goal – max possible wealth creation(child education, retirement)
tenure – minimum 15year to max 25 year
Please suggest is it good portfolio or suggest any modification
+ i want to invest 6k/month – which sip i add it or take new sip ?
Hi Bhushan,
You are welcome.
Won’t be able to express opinion on your portfolio.
Please seek professional assistance.
Hope you are investing in direct plans of these schemes.
Yes i’m investing in direct plan with grown options, Thanks for the reply.
Hope we will get much more informative posts from you. 🙂
That’s great. I will try my best.
Keep coming back and keep sharing the knowledge with your circle.
Hi Deepesh
Which type of SIPs you recommend Growth plans or Divident reinvestment plan for equity funds especially in tax perspective?
Hi Santhosh,
Growth is better.
Thanks Deepesh
Hi Deepesh
Thank you for throwing light on many queries on MF
Can you tell me the difference between ETFs and Index funds.
After seeing the stellar performance of ICICI Nifty next 50 Index fund I just wonder whether it is worth investing in any of the actively managed Funds which are expensive compared to Index funds or ETFs? Are our fund managers showing high Alpha just by luck?
Hi Santhosh,
ETFs have even lower cost than index funds. Enough information available on the internet.
You buy and sell index fund units from the fund house. On the other hand, in case of ETFs. you buy and sell from the secondary market (except in case of secondary offering)
From Indian context, the only problem with ETFs is that there is limited liquidity in the secondary market. That makes it difficult to purchase or sell without impact cost.
If liquidity is too low, you may not even be able to exit from ETFs.
Yes, Next 50 Fund has done well and most funds have struggled to beat the index. However, do note index funds can be quite volatile because there are no measures taken to hedge downside. In very good times, index funds can do much better because indices are 100% invested.
However, I do not mean index funds do not make for a good choice.
Just that, for strategy indices (https://www.nseindia.com/products/content/equities/indices/strategic_indices.htm), there are no index funds. Only ETFs are around.
About alpha, skill, luck and picking stocks from outside the index helps the managers. Consistently good luck is no less skill though 🙂
Thank you Deepesh for your detailed reply
You are welcome, Santhosh.
Thank you Deepesh. You are right active funds tries to hedge downsides better. I just referred to the downside capture ratios from Morningstar website. Here Nifty next 50 Index fund performed better than most popular active funds including dynamic funds, which invest substantial portion in debt or keep cash reserve like ICICI Dynamic fund, Quantum long term ect.
Regarding ETF liquidity will AP’s and company issue ETF ensure liquidity
Fair enough, Santosh. The key is index funds are likely to be more volatile because of their construct. Investors must appreciate this aspect.
Active funds do not always smell of roses. Fund manager risk is a risk, after all.
About ETFs, only a few Nifty ETFs have decent liquidity. For others, impact cost (bid-ask spread) can be quite high.
Thank you Deepesh
thanks for educating. Pls guide (A) what would be better among (1) invest in select large cap fund having limited companies in their portfolio OR (2) directly buying equity shares of such companies systematically every month in the same allocation in the sector?
(B) Whether fund manager better edge through turnover or their proficiency OR would it be better to save cost of AMC through direct purchase o equity funds systematically for a longer period of 10 years.
(C ) Would it be appropriate to keep MF corpus under LIEN to avail Overdraft facility for the purpose to invest further in aggressive mutual funds for longer period of 10 years thru sip form parking in liquid fund
Kindly guide at earliest with example if possible
thnx
Hi Shet,
A. In my opinion, large cap fund is better. Firstly, tracking is not so easy. Secondly, transaction costs and taxes will eat into returns.
2. By investing directly in stocks, you will save on FMC but incur transaction costs and charges by replicating portfolio. You need to weigh the pros and cons. It is another thing if you are confident of your stock picking skills.
3. Clear, no. This is a recipe for disaster for a retail investor.
HELLO SIR,
I WANT TO DO MY FINANCIAL PLANING FOR CHILD EDUCATION AND RETIREMENT MY AGE IS 28YEARS. AND EXPECTED AMT IS 1LAKH. AND EXPECTED REGULAR SAVING IS RS.15K. PLEASE SUGGEST ME.