Investing directly in stocks in the current market scenario is far from optimal asthe markets are still jittery inspite of corrective measures taken by the government to revive investor sentiment.
But analysts believe this is indeed a premium time for retail investors to invest for long term wealth creation. So the million dollar question is how does a commoner invest in a jittery market?, what is the investment route that he should follow to achieve his financial goals. How is it that he can make excellent use of the opportunity presented without the high risk attached?
The solution to the queries above is investing via mutual funds. A mutual fund investment would derisk the commoner as his contribution is only part of a larger pool of funds whose investment decisions are taken by a well qualified fund manager.An ideal fund manager would use his acumen and expertise in making sure that the fund is growing steadily irrespective of the market sentiment. Thus the commoner in this case would enjoy the benefit of being part of a growing fund with minimal risk of his individual investment.
Mutual funds in India can broadly be classified as under Equity, Debt and Hybrid mutual funds, in the last few years there has also been the emergence of Commodity mutual funds especially those catering to Gold due to the rising demand of the ‘yellow metal’.
An investor whose risk appetite is high and is ideally looking for long term wealth creation should invest in Equity based mutual funds. Today there are numerous Equity based mutual funds towards which the investor can make investments for the long run.
Investors who are risk averse can opt for debt based mutual funds, where the returns would be far lesser when compared to equity based mutual funds, but however the risk would be minimal. Debt based mutual funds can still be considered a good investment option when compared to parking one’s fund in a bank savings account which on YoY average would give approximately 3-4% of annualised returns.
Investors who want to experience the best of both worlds of Equity and Debt have the option of investing in Hybrid funds. Hybrid funds are funds which have a composition of both equity and debt portfolios.
Lastly going forward commodity based mutual funds are going to be the hot bed for long term future investment as the value of commodities though volatile is only going to ascend in the near future.
Apart from the different types of mutual funds available, a very important USP of the fund is the option of Systematic Investment Planning popularly called as SIP. SIP allows an investor to pay in a regular disciplined manner every month, thereby allowing him to contribute and grow at the same time with the fund.
On a concluding note I would just like to advise that investing directly in the stock market requires careful and in depth understanding of all the market gyrations in play, those who don’t have the time to study or delve into the details of individual stocks its best for you to utilize the option of mutual funds and let the experts make money for you!!