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You are here: Moneycontrol » Wealth »Your Startup Kit » Mutual funds » 3 reasons to invest in funds

3 reasons to invest in funds

Team Wealth | Friday, September 28, 2007
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A mutual fund is a professionally-managed fund that pools savings of a number of investors and then invests in shares, debentures and other securities. The fund is divided into units and each investor gets units in proportion to his investment. The investor earns by the way of income earned from the investments made by the fund, which is distributed as dividend and also by way of increase in the value of the units (capital appreciation). Mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally-managed basket of securities at a relatively low cost. You need to invest in mutual funds because:

Not all of us are investment professionals
Like doctors are competent at attending to our medical needs, and lawyers our legal issues, mutual funds are like professional money managers. They are well regulated and allow investors the ability to analyse and evaluate their track record.

Investing is becoming more complex
In the simpler times of the past, market went up with the arrival of the first monsoon showers and around Diwali. After globalisation though, complex international factors like increase in short-term US interest rates, collapse of the Brazilian currency or the Russian government defaulting its debt also impact the Indian stock market.

Though one can still understand company/ sector performance and invest, this is fairly complex and time consuming. Mutual funds have fund managers who do this understanding and research, thus giving us an opportunity to invest without getting lost in the complexities.

Mutual funds provide risk diversification
Portfolio diversification is a vital a risk controller. Not all of us are qualified to understand the theories of asset allocation, and would be better off leaving that to a professional. Mutual funds represent one such option.

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