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The control free economy has enabled investors to choose alternative assets over the more traditional forms of investments. There is no dearth of such alternative investment options in India for both the residents and the non-resident Indians. One can choose as per their investment strength and select the best options that meet their market requirement. One needs to be careful whilst choosing such plans – few of which are short term plans while others require one to make long term deposits. Before making such investments, one must evaluate the Indian market and then match it with their requirement and competence level. It makes no sense to involve unnecessary investment risks and choose a safe return scheme such as mutual funds.
It is a popular investment tool that offers a cost-effective way of investing in the financial market. In India, the concept became popular during the 1980s when non-UTI players entered the investment market. Today, it has become a safe and often considered the right way of investment that offers liquidity, affordability, tax deduction benefit along with the most important aspect of maximizing returns. In short, it is a safe method that helps you utilize the money without losing it to the ever fluctuating market trends.
Another aspect that has made it increasingly popular among investors is the fact that it allows them to invest in debt markets and also equities via the Systematic Investment Plan.
To reap the benefits, an interested party must register with Securities and Exchange Board of India or SEBI. It is this company that regulates securities markets, collects funds from the investors, and invests in short-term instruments or in stocks and bonds. It invests in a combination of investments to minimize risk and manages the securities for the investor. In simpler terms, the individual invests in a mutual fund and through the money SEBI buys shares in the fund for him or her; therefore, the investor now owns a portfolio in the company SEBI has bought the shares. These assets are managed by Fund Manager(s) who is responsible for deciding the securities and in the process can also sell the investment for the investor.
Types of Such Schemes
There are two basic types – Open Ended and Close Ended Mutual Fund.
Open Ended Mutual Funds are investment options that are administered by a mutual fund firm. It is the firm that raises the money and collects it from shareholders and once this is done the firm decided on where to invest. The second scheme is where the funds are sold and bought during a time period known as the New Fund Offer or the NFO.
Irrespective for your choice, one must understand the fact that mutual funds reduce the investment risk involved through professional management. The expertise of the professionals involved such as the Fund managers’ help in the process of buying and selecting securities that maximizes your return on investment.
