The Embracing Past

Someone Asked Me How Important Is It Investing In Mutual Funds In Today’s Market?

2018-May-17, I was hiding inside the bush. The circle started shrinking. My heartbeat rises. The screen shows 1 Alive. Unfortunately, my hideout was compromised, I could hear that whizzing and cracking sound of bullets striking near me. I got up and headshot him dead. “Winner Winner Chicken Dinner” (When you win in Playerunknown's Battlegrounds, you see this message). Ting Tong! I opened the door. It was my friend seeking help regarding investment. I asked him to approach the financial advisor, why me? He replied, “I just want to start from scratch. Since you are connected to the stock market and investing from last 5 years, I want your opinion regarding this”. After a long discussion, we came to a conclusion that mutual funds SIP (Systematic Investment Plan) would be more beneficial to him because of time constraint since equity market needs regular touch with the market while mutual funds are handled by professionals. He asked “What is the importance of Mutual Funds in today’s market and how it could be beneficial for him?

Let’s dive deep into the scenario of how I made him understand the importance of Mutual Funds~

"Someone is sitting in the shade today because someone planted a tree a long time ago"-Warren Buffett. A right Investment in an economic sense can be defined as knowledge which pays the best return. Sounds interesting right? But the reason why people are hanging on the fence is all because of greed and fear. This raises a question whether it’s worth investing in mutual funds in today's economy? "L'habit ne fait pas le moine" means just knowing the one side of the story doesn't make the question to go towards a conclusion. The answer is fo'shizzle yes.

Moreover, there are macroeconomic factors, for example, GDP, inflation, interest rates affecting the performance of stock/commodity price. In the event that the economy is doing admirably, the demand for goods and services will be higher, bringing about more benefits for organizations. Further, high swelling implies higher costs and purchasers will have the capacity to purchase fewer products and ventures, harming the organization's deals and benefits.

GDP: - The gross domestic product is the aggregate of the market esteems, or costs, of final administration delivered in an economy amid a timeframe.

Inflation: - Inflation is the rate at which the general level of costs for goods and services is rising and, subsequently power and intensity of currency are falling.

Interest Rate: - The loan cost is the sum charged, expressed as a percentage by a bank to a borrower for the utilization of assets. These are typically annual based known as annual percentage rate (APR). Such assets could be consumer goods, cash and large assets such as a vehicle or building.

Let's take an example to get a glance of a good portfolio. Consider an aggressive investor who wants to invest 80% in equity and 30% in debt. Say the Sensex was at 36,500 and the market plunge down to 34,500 levels. So, of Rs. 1000 invested, the equity portion of Rs. 700 would now be reduced to Rs. 650. This is the prompt time to re-balance a portfolio.

Staying aggressive, 80% of Rs. 950 should now be in equity. So some money has to be pulled out of debt and invested in equity. Most people make a mistake here. Due to fear of money sink, they avoid balancing a portfolio. On the other hand, if the market goes up, one should move some money into debt to keep 80:20 ratios. However, most would think they're restricting their gains. The most important thing an investor should remember is that discipline is the key to success in the stocks, bonds or assets market in the world.

Mutual funds generate two types of income: capital gains and dividends. Mutual funds industry is attracting more retail investors and it not uncommon to say retail investor trust them. It offers a wide range of variety and customization including online financial planning tools which helps investors to plan their saving. The below are the 5 golden reasons why to invest in mutual funds.

Higher Returns

Research data reveals that equity funds have delivered around 15% returns over the last 10 years.
Professionally Managed

Mutual funds are professionally managed by fund managers; they are up to date with market actions. Their job is to track the markets and manage investments. Fund managers identify the providential stocks to buy, when to buy them, and more importantly when to sell them.
Disciplined Investing

Systematic Investment Plan (SIP) is the scheme and agreement to invest a certain amount in same day month consistently for a certain number of months.
No Lock-in/Less

Flexible to redeem money when you need it to rest other traditional investing involve lock-in means no redeem unless quote completes.
Convenience

The whole process is offered online. Easy to access and tracking the performance of your investments can be done easily.

Investors should keep in mind that risk is the price we pay for the opportunity and it is not possible to avoid risk entirely when an investor invests in a market. However, it’s worth to invest in mutual funds with means of effort, goal, knowledge, right decision and patience. If investors choose the right product should stick to the discipline even losses can be tolerable. Apart from this investor need to do is pick schemes that match their goals, investment horizon and risk profile. Mutual Funds has helped many investors to create wealth for their long-term goals.