Upon entering the job market, a lot of young professionals in India aim to accumulate wealth over time. They want to accumulate the wealth to take care of day-to-day expenditures after retiring. For that purpose, people formulate a financial plan. A financial plan is a strategy that you need to follow for accumulating long-term wealth. It is a plan that lists out how much of your monthly income should be dedicated to your expenditures and how much should be kept aside for the purpose of investing. As a part of the financial plan, you need to sign up for an investment scheme. An investment scheme is a tool in which you are required to invest in regularly. When you redeem the scheme, you can enjoy returns on investments. A prominent example of investment schemes is mutual funds.
What are mutual funds?
Mutual fund plans can be defined as investment tools which pools money from a group of investors. The AMC collects money from investors to purchase different financial securities. Once enough money is collected, the fund consisting of the pooled money is used to invest in various financial securities like money market instruments, stocks, and gold. By purchasing a unit in a mutual fund, you get to own a small stake in all the investments which are considered a part of the fund. Thanks to the numerous benefits associated with mutual funds, they are considered a prudent investment choice.
How do they work?
For signing up for a mutual fund plan, you need to contact an AMC, i.e., an asset management company. After finding a suitable AMC, you are required to select a mutual fund variant that suits your investment objective. Each and every variant of mutual funds come with a specific investment objective that’s suitable to distinct investment needs. Depending on the objective of the fund, the money from the pooled fund is made towards various securities such as stocks, gold, bonds, and other money market instruments. The fund manager is responsible for overseeing the mutual fund scheme. The fund managers have one main goal. The said goal is to help earn optimum returns on the fund’s investments. Then, the revenue generated by the fund is divided and distributed among the different investors proportionately.
What are the benefits associated with mutual funds?
- Mutual fund schemes are managed professionally:
To invest in financial markets, some level of skill is required on your part. For investing in a market, you firstly need to have in-depth knowledge about aspects such as different sectors and company financials from the perspective of asset classes. In simple words, investing in the market requires a significant amount of time and commitment on your part. But in case you don’t possess the skill to delve deep into the market, signing up for a mutual fund may be an excellent alternative. In these schemes, a professional referred to as a fund manager takes care of your investments and strives hard to provide a reasonable income.
- Mutual funds are affordable:
Generally, prospective investors are known to hesitate about investing in the market because of the notion that it might be expensive. While it is true that some investment options might be expensive, the same can’t be said for an investment in mutual funds. The amount required for the purpose of investment in most mutual fund schemes is affordable, making them light on the wallet.
- Mutual funds are very liquid:
It is also very easy to redeem mutual fund schemes. You can redeem your mutual fund portfolio on any given business day. Liquidity means that you can easily access your money whenever you want. After redeeming your portfolio, the redeemed amount will be credited to your bank account within a few days.
How do you earn income from these schemes?
When you sign up for mutual funds, it is possible for you to earn in two different ways. Those two ways are through dividends and capital gains. The schemes invested in stocks are known for providing dividends based on their market earnings.
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