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What are 5 advantages of mutual funds?

One of the biggest benefits of investing in mutual funds is that they are diverse. One of the most critical risks in investment is that of losing out the invested money because the assets that you invested in underperformed. When you diversify you reduce such risk to a significant extent. The term diversification in this context implies investing in different assets. It is highly improbable that all your invested assets would perform poorly at the same time. So, you would make at least some gain from some of your assets.

 They are professionally managed

This is one of the best features of mutual fund investment these days. It is not easy for one to invest. No matter where you are investing in – shares, gold, real estate, and bonds – it is difficult. After all, there are a lot of factors that have to be taken into account in this regard. You need to study them consistently and understand them. This is what the professional fund managers do on your behalf.

 They are simple

When you are investing in tax-saving mutual funds – or any other investment option for that matter – you need all the necessary data and information on them so that you can make the perfect decision in this regard. That way, investment also becomes a lot simpler and easier for you. When you invest through the top fund houses such as Quantum they do all the research for you. As an investor, all you need to do is analyze how well the funds are performing in the market.  

 They are easy to liquidate 

It is pretty easy to sell your mutual funds and earn good rewards on the same. However, this is one quality that is rather overlooked. The term liquidity indicates the ability of a financial asset to be changed to cash. You can easily compare this with selling an asset such as your house. Just think of the amount of time it would take for you to sell it and change it to cash.

 They are economical

As far as costs are concerned, mutual funds are perhaps one of the best investment options that you have in India. Even in case you employ the services of a professional portfolio manager, it would not charge you more than 3% of the money that you invest in a year. They may also claim a negligible share from the profit you make with such investment.   

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What is Liquid Fund And how can I redeem liquid fund

What is Liquid Fund And how can I redeem liquid fund

Liquid funds can be used only when you suddenly have more funds. This amount can be in the form of a large bonus or may be the cash received from the sale of real estate or may be from other such means.

They are essentially debt mutual funds. They invest your money in very short-term market instruments such as treasury bills, government securities and call money. Liquid funds are typically used by investors for a period of one to three months. For example, if your child's school fees are installed after two months or you are going to go on holiday after two months, then the money fixed for that can invest in liquid funds.

Many equity investors also use liquid funds to divide their investments into equity mutual funds through a systematic transfer plan (STP) as they believe that this way they can get better returns.

1.     How many returns can be expected?

Investors can redeem their investments and the money goes into their bank account on the next working day. Fund houses do not charge any entry or exit load in liquid funds.

2.     Is there any risk in investing in such funds?

In the category of mutual funds, these debt mutual funds are considered to be the lowest risk avenue. They also have the lowest volatility. The reason for this is that these funds usually invest in instruments with a high credit rating. The net asset value of these funds varies only with the interest income earned.

3.     How are they different from other debt funds?

Liquid funds are different from other debt funds in terms of net asset value. Units are allotted on the previous day's NAV in case of investment made up to 2 pm on a transaction day (depending on the availability of funds till 2 pm for usage). Thus, liquid funds are the only category in which the NAV of the previous day is used. Units are redeemed at the same day's NAV in case of redemption on a particular transaction day after 3 pm and the amount is sent to the bank account on the next working day.

4.     What is the procedure for redemption of mutual fund units?

If you want to redeem units of a mutual fund scheme, you can do this on any working day. Physically you need to fill a transaction slip to do this. You can download it from the fund house website or you can detach it from the end of your account statement. The redemption application can be submitted to a fund house officer.

Many fund houses also allow online redemption through their website. If you have invested through an online portal then you can also use their online facility.

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Should I invest in debt mutual funds?

The market for debt mutual funds has been experiencing some issues in this regard. Recently, Franklin Templeton has closed several such funds because of the COVID-19 pandemic. However, CRISIL (Credit Rating Information Services of India Limited), the top domestic rating agency of India, has stated that investors can still be benefited by putting their money in debt mutual funds.  

 What does the research say?

The research wing of the rating agency has said it would, in fact, be a wise decision to invest in debt fund right now as well. Those investments would still be fruitful and rewarding. However, for that to happen, you – the investors – should know the ways you would invest your hard-earned money in the same. 

 The effects of the steps taken by Franklin Templeton

In this context, it needs to be noted that earlier in 2020 Franklin Templeton closed several such funds. It said that prevailing market conditions at that time were the major reason why it was doing so. It also stated that the commitment to pay their investors over time would be too big a burden to bear. This resulted in some major concerns among investors all over.

 How do things look right now?

However, things are not bad at all. If you look a little deeper into the market for mutual fund products you would see that there are plenty of options that can help you deal with these challenges that have happened because of the economic blow of the pandemic. 

 The condition of the financial markets 

CRISIL has stated that from the first day the equity markets have been down by 21%. It has also stated that the debt market is not exactly in the best health as amounts in the region of 1.94 lakh crore have gone out of the market.     

The total value of assets under management in this market is presently in the region of 22.26 lakh crore rupees. This represents a drop of 18%.

 Why is this so?

There are several reasons for the predicament that the market presently finds itself in. There have been plenty of defaults of late and the sector has slowed down quite significantly as well. 

 This is why it is better that you are judicious with your investment. Choose a leading fund management house such as Quantum as that would make sure that your investment is properly protected. With such a top name backing you, you would have the right guidance in these matters as well.

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What are the major areas of difference between ELSS and equity funds?

In the equity funds, the fund managers usually invest in equity shares as well as other investment instruments. The main aim of these mutual funds is to create high returns for the investors and that is why they invest in the shares of companies of various sizes. However, equity markets are volatile. This means that there is tremendous fluctuation in their prices and that too in a short period. This also means that there is a tremendous amount of risk associated with such an investment. So, if you wish to invest in the equity funds and its market, you have to be prepared to take this risk as well.

 The value of patience and perseverance in such investment  

However, if you persevere and are patient you could reap handsome rewards in the bargain. This is especially true when you invest through a top-tier fund house such as Quantum. This is why you must be mentally prepared to invest in this market for the long haul. This is also why it is such a good option for certain people. For example, people who are planning to retire after 20 years should invest in these and build up a good corpus for their retirement. However, if you have any urgent expenses in mind it is better to stay away from these.  

 What are ELSSs?

The term ELSS stands for equity-linked savings scheme. This is also a kind of equity investment but the main reason why people invest in ELSS funds is to save taxes. So, there you have a key difference between ELSS and equity fund. As per Section 80C of the Indian Income Tax Act you can get tax benefits till the region of 1.5 lakh rupees in a year. Apart from helping you save taxes it also has a unique feature of a lock-in period of 3 years. This helps you create the habit of saving for a longer period. This is what you should ideally have as an investor. 

 The popularity of ELSSs

Among all tax-saving investments, ELSS happens to be the most popular. In fact, they have become quite popular nowadays. Much of this is because of their shorter lock-in periods compared to other such forms of investment. They are linked to the market and this is why they provide much better returns as well. They also offer greater flexibility to investors. If you want you can also invest in these funds through SIPs (systematic investment plans).

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