Mutual funds investment
Mutual funds as an investment though not a new topic but it has been becoming an important investment among working class in the recent years especially in developing countries. The most important advantage of the mutual funds is that it requires a small investment to start with as low as 500 rupees with the systematic investment plan. The companies convert the investment into units of 5, 10, 100 etc. Care must be taken while investing in mutual funds to see that there is no entry load while investing as this will reduce the number of units that you get from the companies thereby resulting in less profit-sharing. Another important factor to be noted is that you should select the company which has a good reputation in the market:-the history of the company, the financial background of the company, the liquidity of the company, its debt-equity ratio as well as the revenue distribution by the company in the recent years. However, a point that needs to noted is that past records or revenues paid by the company is not a guarantee of the current earnings as a majority of the amount of mutual funds is invested in share market which fluctuate in seconds but still past records of the company's revenue distribution to the investors must be taken into consideration while investing in mutual funds. One more factor that needs attention is the lock-in-period of the funds during which the funds cannot be withdrawn. The lock-in-period is usually three years. Anything more should be avoided. The sip amount I. e. the systematic investment plan amount should be small as it is a monthly payment otherwise there would be a problem if the sip amount is more than 500 as it is more likely to affect the budget of the working class in a recession and inflation-hit economy. The last important factor that should be paid attention is the plan of the mutual funds which you are selecting for investment. There should be a balance in the plan you select for mutual funds investment. To be very clear, the plan should be flexible so that the funds you invest can be diverted in various sectors depending upon the market and economic conditions. Now what are the demerits of the mutual funds as an investment? The most important demerit of the mutual funds is that the return on investment is not secure as the funds are largely invested in stock market which has heavy ups and downs. Another drawback of the investment is that the return which you get from the investment is taxable after a particular limit depending upon the tax laws of the country unlike equity dividend which are usually tax-free. However, it can be said that a proper selection of the mutual funds plan, keeping in mind the risk factors and the small investment plan:-the mutual funds can be a great asset to anyone especially the working class people in the long run.
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