Here's why investments in mutual funds are appealing

Mutual Funds Sahi Hai – This catchline is constantly showcased across many media platforms but there are still many who have not been able to make optimum use of this investment vehicle.

Investments in mutual funds have seen a steady rise in the later half of the past decade due to the slew of awareness initiatives by the Association of Mutual Funds in India (AMFI) and willingness on the part of youngsters to invest money in other schemes other than the traditional options like fixed deposits, PPF, etc.

So, what is the one factor that instantly appeals to a prospective investor?

He or she does not have to open a Demat account to invest in mutual funds and it can be done within minutes.

Before zeroing in on their amounts chosen for monthly contributions, mutual fund investors need to take into various factors such as investment horizon, risk appetite and financial goals.

So, how do mutual funds manage to generate handsome returns?

A professional fund manager invests in company bonds, money market instruments, etc, on your behalf. The returns, however, depend on how the equity markets perform.

Unlike shares, when you invest in mutual funds, you don’t essentially become the owner of a company or get the voting rights but you are actually investing in the performance of a portfolio. In mutual funds, since investment is quite diverse and happens in different streams, a group of all those streams is known to be a portfolio. Thus, the price of a mutual fund is derived from the value of a portfolio and is known as Net Asset Value.

There are various types of mutual funds which you can consider to buy and we will be covering this topic in our next article.