Personal Finance Solutions for India

How You Can Benefit from A Mutual Fund
Shiv N. Majumdar

Defined Tag: Mutual Fund Investing.

Mutual fund investing is at present the rage in India, thanks to the current booming stock market condition.

However, all mutual fund investments are not directly linked with stock markets. Some funds invest in bonds and debentures and some others in government securities.

But, mutual fund investing can benefit you in all market situations, if you understand the basics and use them to further your personal goals.

Mutual funds can improve your returns, avoid the TDS out of your growing money as in a bank deposit and, in general, is a tax-effective vehicle for your funds.

Mutual fund is a sophisticated financial product. It offers wide variety of risk and reward. It can be used as a building block in an effective wealth creation strategy.

If MF investment had all plus points it would be too good to be true. You'd better also look for the pitfalls.

In particulars, you would need to consider the following:

1. There are risk factors in MF investing. They will have to be managed.

2. The particular fund's past performance need to be seen. They are important but not the surest indicator.

3. You have to understand the investment objectives and strategy of the particular fund.

4. There are many different shades and many different kinds of investment risks. You must be sure that what you invest in suits your personal requirements. Failure to do so will result in Unit 64 like situation later.

5. Risks and returns are related. But not necessarily in a proportional way. You should strive to earn a little disproportionately higher returns for the risks taken, rather than disproportionately higher risk for your returns.

6. The charm of tax friendliness in MF schemes will come into play if you remain invested for more than a year. The longer the better. Therefore, your choices should not be by trial and error, or of short term nature. More informed and considered choice will pay you back handsomely.

7. There are about 1000 options in MF schemes to choose from. Also, what looks good today may not remain as good after some time. Therefore, you need personal attention to monitoring and review involving substantial involvement of your time and effort.

8. MF investing is ideal as a building block for a Personal Finance (Strategic) Planning. The gains from such an exercise can be mind boggling. However, success of such a plan will depend on a dedicated skilled specialist.