A few decades back the layman’s role for investing in markets was marginal or rather nil as most of the investment opportunities and returns were enjoyed by corporates and to a certain extent by HNIs that would invest corpus funds of capital to achieve significantly higher returns. However, things started changing significantly on introduction of financial instruments like mutual funds that helped make space for investments for layman in particular. They can be best defined as a trust that pool’s the savings of a number of investors with a common financial goal.
One of the biggest advantages of investing through MF’s is that it allows retail investors to actively invest their hard earned money in the financial markets through a medium which is less risky when compared to direct investing in stocks. Earlier the retail investors used to stay away from directly investing in stocks because it was considered a risky terrain and the investors lacked the requisite financial know-how required for investing in these volatile markets.
Thus like-minded investors who wanted to invest, but lacked the financial know-how decided to pool in their money into a fund whose investment decisions would be taken by an experienced fund manager to get the best out of their invested capital.
The fund manager would thus have the responsibility of taking investment decisions on behalf of the investors. This investment instrument has really grown popular amongst retail investor’s as when they invest in a mutual fund their risk is disturbed amongst the other investors who also pool money in the same fund. The biggest advantage is that their investment decisions are taken by a seasoned investor who is well versed of the tricks of smart investing while keeping the market gyrations in mind.
The fund manager using his expertise would invest wisely in different funds, thus spreading the investment risk of the portfolio assigned to him. MF’s in my opinion are also among the few financial instruments that always seem to have organically grown to have modified itself to suit the needs of investors.
To mitigate the risk of investing a large amount of capital income, at one time, investing in MF’s also allow you to invest smaller amounts regularly in a systematic manner. This method of organized, systematic, monthly investments is called SIP (Systematic Investment Plan). Thus one can invest in mutual funds even with a monthly investment of Rs 1000, and reap good returns when the fund matures.
Recently the investment of mutual funds has taken a leap with the issuance of Online Mutual Funds. Online mutual funds popularly known as ‘Paperless Mutual Funds‘ allow investors to apply for mutual funds directly online, the entire process can be done in a paperless and effective manner. MF’s like any other investment product also carry with it a certain amount of risk; thus investors should always make sure to purchase them from brokerage houses that are empaneled with the requisite regulatory bodies.
It is mandatory for all investors to read carefully all the terms and conditions before investing in any mutual fund. Also it is imperative that investors invest only after carefully studying and doing adequate research on the fund’s fundamentals before investing in it. Thus with the coming of mutual funds, the once forgotten layman can now also reap the benefits of smart investing if he does so wisely.