5 Reasons You Should View Mutual Funds in India as Wealth Creators

December 03, 2013 finmarketguru No comments

5 Reasons You Should View Mutual Funds in India as Wealth Creators

If anyone were to ask you, when is the right time to invest in the stock market, then it’s possible that you would blurt out perplexed response, even if you were a stock market hawk. Yet, despite the volatility in the stock market, mutual funds are still considered preferable investments compared to pure equity investments or government bonds. As predicted by several market experts, 2013 was a year of complete volatility. With the plunging Sensex, it is the year for the mutual fund buyer.

What’s going on in the mutual fund industry?

In the overall framework, the mutual fund industry grew by 19 per cent in the year 2012-13, according to Business Today. Most investors moved onto schemes that were not risky, such as fixed-income instruments which included investing in government bonds and corporate bonds. We take a look at five reasons that make mutual funds a significant wealth creator:

Increasing Transparency in Stock Market. Since the Harshad Mehta in 1992, essentials such as NAV and fund portfolios were rarely disclosed or discussed. SEBI ensured that private mutual fund houses would make daily NAV disclosures and monthly fund portfolios mandatory.

Diversity rules: AUM or asset under management mutual funds gives investors better efficiency in returns. Since the 1990s, tax saving funds also gained tremendous popularity, while other products concentrated on gilt-edged schemes. From 2001, sector-based funds that concentrated on technology, pharma and retail sectors became popular. Open-ended schemes are more attractive for investors that allow investors to enter and exit the market,at any time.

Security with information: Currently, SEBI is very protective of investors, with certain limits to exposure and the concentration levels of portfolios. Several schemes have been given limits to investing in rated and unrated bonds. Along with this, SEBI has made it mandatory to make mutual fund houses report any changes in portfolio to the investors.

Better fund management practises. Until 2007-08, the scheme’s performance completely relied upon the fund manager’s performance. This direct correlation has ended the biases of the fund manager that seem to percolate to the performance of the fund. Currently, teams are allocated to handle the performance of a scheme, apart from the fund manager.

Investing techniques: SIP is one of the most effective ways of investing in mutual funds. The only way in which mutual fund houses are making money these days is via systematic investment plans. Investors can allocate as little as Rs. 500-1000/- a month towards any stock market mutual fund. With the introduction of SIP, anyone can invest in equity in the stock market and reap benefits.

There are further added advantages of Mutual Funds investments for wealth creation.

And the award goes to…..

Beating the Nifty and the Sensex has been the dream of several mutual fund houses. Yet, very few have managed to do in the year 2012-13, according to the MONEY TODAY-Value Research Annual Best Mutual Fund Ranking research. They categorised the best performers based on three categories viz. equity, hybrid and debt funds.

We look at the 5-star achievers in their sub-categories that can be looked at as wealth creators are:

The categorisation has been based on the market capitalisation and the tenure of these securities. This has also considered the interest generated amongst investors in these listed funds due to their risk-adjusted returns. Currently the mood is for stock-picking as the Sensex continues to recover from the recent plunges.Nevertheless, market analysts are hopeful that the rise in the rupee will be a good omen for the stock market too.

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It’s All About Money is a leading personal finance blog in India which provides simple practical information about money, banking and managing finances.   It’s All about Money   tries to answer the what, why and how about money and everything around it.