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Mutual funds were created to make investing easy, so consumers wouldn't have to be burdened with picking individual stocks with High Risk.

"When it comes to investing, nothing will pay off more than educating yourself. Do the necessary research, study and analysis before making any investment decisions".

History of Mutual Fund Industry in India

The history of Mutual Fund Industry in India can be traced back to 1963, with the launch of the Unit Trust of India by the Government of India under an Act of Parliament. UTI was launched under the regulatory and administrative control of RBI. In 1978, the regulatory and administrative control of UTI was transferred from the Reserve Bank of India to IDBI (Industrial Development Bank of India). The first mutual fund scheme that was introduced in India by UTI was in the Unit Scheme (1964).
In 1987, public sector enterprises such as State Bank of India, Punjab National Bank, Canara Bank, etc. and other non-UTI segments such as General Insurance Corporation of India (GIC) and Life Insurance Corporation of India (LIC) entered the market and established public sector mutual funds.
From the year 1993 onwards, private sector funds were established in the mutual fund industry.
Currently 43 Asset Management Companies (AMC's) (Public and Private ) are working in the field of Mutual fund services to create wealth for Investors.

Why does Mutual funds are not recognized in India?

Despite being available in the market, less than 10% of Indian households have invested in mutual funds. A recent report on Mutual Fund Investments in India published by research and analytics firm, Boston Analytics, suggests investors are holding back from putting their money into mutual funds due to their a lack of information on how mutual funds work.There are 44 Mutual Funds as of May, 2020.

The primary reason for not investing appears to be correlated with city size. Among respondents with a high savings rate, close to 40% of those who live in metros and Tier I cities considered such investments to be very risky, whereas 33% of those in Tier II cities said they did not know how or where to invest in such assets.

Keeping your money at home is just a traditional way of saving it, but this idle cash would reap you no growth. At the same time, to match with the times of rising costs, it is necessary to invest for your future and financial goals. Thus mutual funds come as a lucrative choice of investment, which is also cost effective for investors who wish to invest in stock markets and reap market linked returns. However, when choosing to invest your money in mutual funds one must do so cleverly and systematically. Foremost, it is important to know the different types of mutual fund schemes available. How much funds you have at your disposal? What is the span you wish to invest your funds for? What is your risk taking ability? What are your financial goals and your profit as well as loss bearing capacity?

Having decided on the basics, you then need a professional in this domain to further manage your funds, basis extensive research and sound knowledge of the money market. These professionals known as Fund/Money Managers constitute to the entities that are engrossed in offering many such mutual fund management services and are better known as Asset Management Companies (AMCs) or simply Mutual Fund companies. These Mutual Fund companies in India are regulated by Securities Exchange Board of India (SEBI).

Summary: Mutual fund is a great collective investment vehicle, aiding people a better way to manage their investments. It’s a money management concept that brings together the money of people who wish to invest in tradable assets, which can be classified into several categories basis principal investment, time of closure and periodicity of payout. Thought these funds have risk involved, but also there are several advantages to it too and can be rewarding if your funds are managed well.

What is a mutual fund?

A mutual fund is essentially a common pool of money in which investors put in their contribution. This collective amount is then invested according to the investment objective of the fund.
The money could be invested in stocks, bonds, money market instruments, gold and other similar assets. These funds are operated by money managers or fund managers, who by investing in line with the specified investment objective attempt to create growth or appreciation of the amount for investors.
For example, a debt fund will have its specified objective to invest in fixed income instruments or products like bonds, government securities, debentures, etc. Similarly, an equity fund will invest in stocks and other equity instruments.
Some common categories of mutual funds are:
> Equity funds - funds that invest only in stocks and other equity instruments
> Debt funds - funds that invest only in fixed income instruments
> Money market funds - funds that invest in short-term money market instruments
> Hybrid funds - funds that divide investments between equity and debt to create a balance

Benefits of Mutual Funds?

You can confused for choice when it comes to choosing an investment product. There is a large variety of options available, right from fixed deposits, stocks, gold or real estate, insurance, public provident fund and mutual funds. Each product has its pros & cons and risks & rewards. However, if you are looking at an investment option that is professionally managed, diversified and offers a good risk-return trade off, mutual funds can be the right choice for you. Let us look at the advantages mutual funds offer that make them a wise investor's choice.

Why investing in a Mutual Fund is a wise choice?

1) Diversification

One of the biggest advantages mutual funds give you is that of immediate diversification. You may not have enough money to spread your investments in varied stocks and sectors, but by pooling money from thousands of similar investors, a mutual fund spreads your investment and hence, risk. It is highly unlikely that all the stocks will go down by the same proportion on any particular day. This ensures that you have not kept all your eggs in one basket and are safe from incurring huge losses from a single bad investment.

2) Professional Management

Another big benefit of investing in mutual funds is the professional expertise it provides for your investments. Asset Management Companies (AMCs) provide qualified fund managers who, with the help of strong research teams and their own expertise, pick the best options to meet the fund's objective. This saves you time and the stress of constantly monitoring your investments and wondering if you made the right buy or sell decision. With mutual funds, you do not have to worry about market swings.

3) Affordability

You may want to buy shares of large companies or want to invest in big companies in a particular sector of choice. However, you may not have the money to make a big investment. Mutual funds trade in big volumes, giving their investors the advantage of lower trading costs. Anyone can start an investment in a mutual fund through a Systematic Investment Plan (SIP) with as little as Rs.500/Rs.1000.

4) Liquidity

You can easily move your money in and out of mutual fund investments. Investments in open-ended funds can be redeemed in part or as a whole any time to receive the current value of the units.

5)Tax Benefits

There are various tax benefits available on your investments in mutual funds. For example, investments in Equity Linked Savings Schemes (ELSS) qualify for tax deductions under Section 80C of the Income Tax Act. There is no tax on capital gains on units of equity schemes held for more than 12 months.

Schemes other than equity-oriented schemes are treated in the debt category for tax purposes. Short term capital gain is applicable for redemption of debt mutual funds within 3 years. Long term capital gain (more than 3 years) from debt mutual funds is taxable after claiming the benefit of Indexation.

6)Well Regulated

In India, all mutual funds are regulated by the Securities and Exchange Board of India (SEBI). All mutual funds are required to follow transparent processes, as laid down by SEBI, protecting the interest of investors. Further, SEBI makes it compulsory for all mutual funds to disclose their portfolios every month.

Are Mutual Funds Safe? What Is the Risk of Investing In a Mutual Fund?

Worried about Investing in Mutual Funds? Are Mutual Funds safe? Multiple factors have led to a general lack of trust about them, but do they make sense as an investment option?

We give you the answers below. Read on to find out.

1. Mutual Funds: Is the fear Reasonable or Logical?

Traditionally, Indians have had the tendency to choose investments that guarantee safety in terms of capital protection as well as fixed returns. This is why fixed deposits (FD) and recurring deposits (RD) have retained the faith of the Indian investor.

Furthermore, FD and RD can be done at banks and post offices, which are perceived to be the safest places where one can keep their money.

Mutual funds haven’t been able to garner the same kind of trust because many fund companies are not known to the lay or small investors even if it exists in India by Govt. owned "Unit Trust of India" (UTI) since 1963.

Mutual funds have also suffered because of various quick-money schemes and chit funds which have promised high returns, but looted investors of their money. It is because of these reasons that mutual funds are not considered to be “safe” investments. However, that is not true because Mutual Fund have no relation with this kind of Un-regulated chit fund and easy money scheme which is promising money double in 1 year or 2 years. And those are putting their hard earned monies into these schemes, those people are Greedy to earn and brainless person. How can anyone convince you for 100 or 50 % market return on every year? Ask yourself first and take your decision!!!!

2. So, are Mutual Funds really safe?

As far as investments are concerned, safety can be ascertained in two ways:

a. Safety in terms of the company or institution disappearing with your invested money

b. Safety in terms of offering capital protection and guaranteed returns

While no investment is 100% risk-free, our own analysis, experience, financial asset knowledge and Financial Advisor’s advise helps us to decide best-performing Mutual Funds for our investment need so that when you invest in them, you get the best value for your money. However, what you really need to know before making an investment is this:

a. No one will run away with your money!

If you are worried about flight risk then rest assured because mutual funds are completely safe. You will not wake up one morning to find out that the fund company you have invested with has run away with your money. That is not going to happen!

How can we assure you this? Because Mutual Fund companies are regulated and supervised by regulatory agencies like the Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI). The license to run a Mutual Fund company is given after as much due diligence as is done while giving banking licenses to banks. In short, a Mutual Fund company is as safe as a bank. The flight risk is therefore as low as can possibly be.

Did you know?

SEBI has strict rules that prevent a “Mutual Fund” Institution from converting all assets into cash and running away. As mutual Funds value is judged everyday and it has to declare its holdings every month.

b. Mutual Funds are meant for earning higher, tax-efficient returns:

Coming to the second type of safety, it is true that Mutual Funds don’t guarantee capital protection or fixed returns. But the purpose of investing in Mutual Funds is to earn higher returns than what traditional investments offer (FD, RD, Post office saving etc,). These higher returns are the result of a wider market exposure, calculative risk taking capability and professional fund management. All this is available at a nominal initial capital via the Systematic Investment Plan (SIP) route.

***Check the screenshot of FD rate of Indian Banking Sector published by RBI

***Check the screenshot of Inflation rate of India published by RBI

Mutual Funds are also more tax-efficient than traditional investments. Short-term as well as long-term gains from Mutual Funds are taxed in a way that it doesn’t eat into the returns. These funds make a lot of sense as long-term investments because the longer you stay invested in them, the more returns you earn. This is because of the power of compounding where your returns also earn returns.

Over most long periods, Mutual Funds have given superior returns that have beaten traditional investments and also been higher than the prevailing rate of inflation. The risk that comes with Mutual Fund investments can be managed by diversifying your investments.

3. The Last Word: Should you invest in Mutual Funds?

In a nutshell, Mutual Funds are safe. Investors should not be worried about short-term fluctuations in the returns while investing in them. You should just choose the right kind of mutual fund to match your investment goal and invest in it with a long-term view. Here Long term view means 10 to 25 years of range. Just as time heals everything, time also makes mutual funds safe and rewarding!

Before you invest though, it is always wiser to do your research and read more about Mutual Funds in general. Different funds will give you different returns based on their market performance and their historical graph. You can look up the Value Research Rating guide, Morning Star, Crisil Mutual Fund Ratings, Money Controls which ranks the top-performing Mutual Funds every year and takes your decision.

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