What are Mutual Funds in India ?
Even those of us who are ignoramuses in the field of Economics and Finance has at least heard of mutual funds. The ones among-st us who dream of making income by investing our savings even have thought of investing in such instruments. A majority of us nonetheless have little knowledge of what these actually are.
You can go and invest directly in share markets if you find yourself daring enough or you can do the same through mutual funds. Mutual funds are basically investments in securities of diverse entities that are managed by professionals. Since the economy at present is highly unstable, mutual funds do carry sufficient risk. But, as they are managed by professionals, you can be assured of a great degree of safety.
It is important to remember purchasing a mutual fund “unit(s)” doesn’t mean all your money goes towards a single entity’s shares. The money could be invested in various shares, bonds, debentures or a combination of the above. The profits and losses are also distributed among-st all investors.
In India, all mutual funds are registered with the Securities and Exchange Board of India (SEBI). This is the main regulatory authority for all kinds of securities in India. SEBI tries to protect investors whilst ensuring all companies are issuing instruments and acting within their powers.
Also with mutual funds, you get the benefit of compounding. Compounding is when your returns are re-invested. That means your subsequent returns are calculated on the initial investment as well as the reinvested amount. The longer you guard a mutual fund investment, the more you gain.
Thus, if your investment crosses the period of a year you aren’t required to pay tax on the returns you gain. It is for the above reasons mutual funds, despite the risk they carry, are very attractive investments at present.
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