We all know that person who became rich by selling stocks. Stocks have a huge potential to generate significant returns. If you invest in the right set of stocks at the right time, you can easily become rich over time. Thus, these investment options are often referred to as multibagger.
However, investing in the markets has its own share of pros and cons and this process of identifying the apt stocks and the right time to enter the markets is easier said than done. Basically, if you wish to invest in stocks, you must be endowed with the skills and knowledge required to invest in the stock markets. So, is there any other way to minimize this risk and yet enjoy extravagant returns?
Enter – mutual funds
Mutual funds are investment vehicles that invest the pooled money collected from several investors in the stocks of different companies. This pool investment is handled and managed by a mutual fund expert known as fund manager. One of the biggest benefits of mutual fund investment is that unlike direct investments in stocks, you do not have to constantly track and study the markets. The fund manager does this job on your behalf. These fund managers have adequate knowledge and skills to invest in the markets and take investment decisions on your behalf. A fund house or an AMC (asset management company) charges a small fee, known as expense ratio for providing professional management to investors.
The primary difference between stocks and mutual fund investments is investor behaviour – which let’s face it is quite unpredictable. When a stock is performing well, everyone wants a share of it. Sadly, the inverse holds true as well. However, in case of mutual funds, if one stock is underperforming it’s losses can be countered by another well performing stock.
As under mutual fund investments, the total investment is spread across different stocks, there are chances that some of these stocks end up making significant returns for you – thus trying their best that you do not end up making significant losses. This is the reason why experts advise their clients to diversify their portfolio – diversify your portfolio across location, sectors, and asset classes.
For investors new to the investing world who do not have much clue about how the stock markets work, mutual funds can prove to be an ideal investment option. There are several benefits of mutual funds. Several fund houses or AMCs also offer an investment tool known as mutual funds return calculator to investor. This investment tool is useful in calculating the estimated future value of your mutual fund investments. Use this investment tool to your disposal and plan your finances in a better way.
Before you finalise on the right kind of mutual funds for your portfolio, consider several parameters such as your financial goals, your investment duration, and your risk appetite. Ensure that your mutual fund investments align with these parameters. Happy investing!