Mutual Funds - A Boon For Small Investors

Mutual funds have now become the answer for the small investor’s prayers to get a share of the big pie of corporate returns. The average investor has a very limited pool of money from which he wants to derive the maximum possible returns with moderate risk.

In recent times our domestic mutual fund industry has witnessed mutual fund scheme merging. Such merging is usually the result of acquisition by a fund house of another. The reason is enhanced operational and fund management efficiency.

For many the question is what the word means even! It is a professionally managed pool or collective of money which earns in the form of dividend, interest as well as growth of capital investment. This type of investment is fast becoming very popular for small investors since:
 

  • Mutual funds cater to both kinds of investors. They can cater better to investors who want a balance between regular earnings as well as eventual lumps sums. Small scale investors also comprise of investors who are always looking for sure shot options. For them Income is guaranteed from debentures and bonds providing fixed interest.

 

  • When small scale investors invest in mutual funds, they should look at long term investments. While it is true that future performance cannot be extrapolated based on past showings, consistency is still better.

 

  • Further, merger of schemes is no cause for worry. They are easy to get into, as usually a lot of research goes into it. However, the exit from a scheme is equally important. The particular fund may have good prospects.

 

  • Mutual funds while providing the advantage of returns from various sectors also hedge against probable loss by carrying a very wide and deep portfolio. Small investors thus enjoy this security.

 

  • In case of a merged scheme, an investor needs to check whether the scheme which has been formed is suitable for his/her portfolio.

 

  • They are also popular since the money management charges have become far less as a result of so many units being distributed among a plethora of investors.

 

  • The ratio of assets under management to capital – is very low and this is one aspect which small investors comprehend with time.

 

  • Mutual funds in the form of ETFs are also quite popular. They are traded based on indexes of best available stocks. However, in India such funds are not as many.


The small investor should verify the funds and its manager’s track record. They must also take taxation into count.

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