Mutual Funds are good or bad?

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          Recently, Franklin Templeton India's 6 debt fund closure was a shock to the investor as well as made them concerned about their mutual fund investment. This chaos has created fear in the mind of investor that is investing in mutual fund are safe? Thus, in this blog, I would tell you what is mutual fund in short, its safe or risky, basic types of mutual fund, their benefits and most important you should invest in it or not 

          Mutual Fund is a professionally managed fund which pools money from investor to invest in different securities such as stocks, bonds, etc. on a nominal fee. In simple words, your money and other investors money are collectively invested by professional in different assets to earn maximum return.

➤ Is Mutual Funds are Safe or Risky ?

          Well, I would like to tell you that all Mutual funds are safe because three governing body of government are involved in it.
  • Securities and Exchange Boards of India (SEBI): It regulates stock exchanges and mutual fund,
  • Reverse Bank of India (RBI):  It regulates money market of mutual fund,
  • Association of Mutual Fund in India (AMFI): It gives detail report about all mutual funds in India to SEBI. It promotes and maintains standard of mutual fund scheme.
Interesting thing is that if a company is bankrupt than also your money is safe to SEBI. The investor's money in Franklin Templeton Fund are secure and safe. Remember one thing, all mutual funds are registered with SEBI hence they are safe.


➤ Basic Types of Mutual Funds:

Generally, there are three types of mutual funds. They are :

1. Equity Funds: These are high risk funds as money is invested in stocks of companies across all market capitalization. They have potential to provide high return.
  • Large cap fund, mid - small cap fund and multi cap funds are differentiated based on market capitalization.
  • Sector fund are specific to a particular industry such as FMCG, pharma, technology, etc. 
  • Theme fund are specific to particular subject such as emerging FMCG companies, etc. 
 2. Debt Funds: They invest in fixed interest generating securities such as corporate bonds, government securities, commercial paper, treasury bills and other money market instrument. Their main motive is to earn interest income.
  • Gilt fund are one which invests in government securities. This is good for risk averse fixed income investors.
  • Fixed maturity funds have fixed lock-in period and money is invested in corporate bonds and government securities.
  • Short term fund invests in securities for shorter maturity period. It is ideal for conservative investor. 
  • Liquid fund invests in securities with maturity of not more than 90 days. There are risk free funds.

3. Hybrid Funds: As the name suggest, they invest in debt as well as equity instruments to diversify the portfolio and avoid concentration risk. These funds are safer than equity funds.
  • Equity-oriented hybrid funds are one in which investment in equity is more than 65% and rest in debt securities.
  • Debt-oriented hybrid fund invests more than 65% in debt instruments and rest in equity. 

➤ Should you invest in Mutual Funds?

I would say mutual funds are best investment for those
  • who don't have in-depth understanding of share market,
  • who don't want to depend on their own knowledge of market,
  • who don't have time to look after news and updates on share market,
  • who don't want to take more risk in investing in equities,
  • who thinks its more stable form of investment than equity.
There are various benefits of mutual funds. They are
  • Mutual funds have professional money managers who choose the securities where money is to be invested to earn maximum return.
  • They offers diversification by investing in different asset classes.
  • They offer liquidity as easily redeemable.
  • They are affordable as  small amount can be invested.
  • They offer Systematic Investment Plans (SIP) option who don't want to invest lump sum money.
  • They offer flexibility to switch funds to get best returns.
  • They are safe and secure as all mutual funds are under SEBI and AMFI.
  • They are easy to trading.
  • They are easy to track as mutual fund provides monthly performance statement.
          According to my opinion, mutual fund is good investment if you have particular financial goal, your time horizon is 10-15 years and want to start SIPs.


➤ How to choose best Mutual Fund?
There are points you need to consider while selecting mutual fund
  • You should know your financial goal, time horizon you want to stay invested and risk you want to take.
  • Check how fund has performed in past 5 years.
  • Check who is fund manager of AMC and size of fund i.e. Asset Under Management (AUM).
  • See the expense ratio. Higher the AUM, lesser will be expense ratio.
  • Always see the exit load as we never know when we need the money.

➤ How to invest in Mutual Funds?

There are many ways to invest in mutual funds.

          At the last, I would say I prefer to invest in debt mutual funds rather than equity mutual fund because I want to have my own portfolio of equity. Seeing current market condition, I would suggest everyone to invest in gilt funds along with equity investment or in hybrid mutual funds to diversify your portfolio, to withstand market volatility and to safeguard your money although it has low return. But yes, mutual funds are good investment if you choose correct mutual fund for long term.


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