Mutual Funds is a safe way to invest in the markets. If you are a non finance guy or one who does not have time to stalk the market on a daily basis, you may choose to participate in the market via Mutual Funds.
The products offerings by Mutual Funds looks like a buffet to me. What to take and what not to take. The fund managers are vying for your money by giving you various strategies to make money. I also agree to what they do. Every fund has the potential to make money for you provided you understand the philosophy.
But, if you are the one who is just glossing over the mutual funds schemes because you have become disenchanted with the lowest ebb that the Fixed Deposits Interest rates have reached in India, then, I have a simple idea for you. Look for Index Funds.
The beauty of Index Funds is that they do not follow any particular fund philosophy. They just follow the market indices. For example, if you take NIFTY 50 Index fund, then, you will see that the portfolio of the fund is a mere reflection of the NIFTY 50. You will find the stocks and their weightage mirroring the composition of the Index. Hence, they are called Index Funds.
The reasons why the Index Funds should be your favorite gateway to Mutual Funds are more than one.
1. Expense Ratio: The ration talks about the expenditure that you incur on giving your money to be managed by the fund managers. The most common expenses are the brokerage charges and the number of times that the portfolio is churned by the fund managers. When the fund managers buy and sell or trade in the stocks, there are charges attached to them. So, more often the portfolio is churned, higher will be the expense ratio. Index Funds do not have high expense ratio for the simple reason that the stocks are bought in the same ration and composition as they reflect in the Index. Say for example, if you are buying NIFTY 50 Index fund, then, it simply implies that you are buying the whole godammn index. So, minimum expense ratio.
2. The funds forming the index reflect the true picture of the market. The stocks so not remain the same all the time. They make entry and exit as per their role played in the overall games of the stock markets. Like Volume turnovers. So, if you are investing in the index fund, you are set to gain.
3. Quality Stocks: Those funds that make their entry into the Index are performers. That’s why they are there.
4. Volatility: They are the least volatile. This is the reason why I am asking you to look at them. They are as good as FDs. Only thing that you would need to remember is that they are stocks and not bonds. Stock is something that will move up and down. People will buy and sell them. So, they would follow the trends of demand and supply. If you give them enough time, they are bound to grow.
Investing in mutual funds is a safe and secure way to increase your prosperity. Start with Index funds to gain confidence in investing. Bonn investing!!