Wednesday, 22 August 2018

Why should you prefer Mutual Funds - I

We all have dreams and money certainly goes a long way to provide for those dreams. And, who doesn't dream of being financially free and/or independent?

We all look for best avenues for investments, according to our Savings, budget and financial goals.

While we look out for investment options, rate of return is of prime importance and if history is an indication, the Indian Stock Market has delivered the best returns. In other words, "EQUITIES" as an asset class has proved to be the best investment option. 

Historically, NIFTY 50, the benchmark Indian Stock market Index has delivered approx 16% return, annually over the past decade. This number, clearly, beats all the other asset classes. 

And the best way, to be an investor in the same is Mutual Funds.

Now the most important question, why Mutual Funds?

Let us take AXIS LARGE CAP MUTUAL FUND (G) for our understanding.
One Unit of this Mutual Fund is of Rupees 28.75/-

These are the top constituents of the Fund:
                                                                                                                                                                                                                              Source: Moneycontrol
click on the image on enlarge

Consider this, if we were to buy the above mentioned directly, we would be needing a large amount of money to start with.

S. No.
Stock
Industry
Weightage
Stock Price as on 21/08/2018
1.
HDFC Bank Ltd.
Banking
9.89%
2096/-
2.
Kotak Mahindra Bank ltd
Banking
6.87%
1263/-
3.
HDFC Ltd.
Finance
6.76%
1913/-
4.
TCS Ltd
Information Technology
6.49%
2017/-
5.
Bajaj Finance Ltd
Finance
5.99%
2871/-
6.
Maruti Ltd
Automobile
5.38%
9113/-
7.
Reliance Industries Ltd
Oil and Gas
4.43%
1247/-


Total
45.81%
20520/-

Clearly, to buy just 1 share in each of these companies, one would need a total of INR 20520/- (Rupees Twenty Thousand Five Hundred and Twenty)

Instead, we can buy holding in these companies via this Mutual Fund for only 28.75 (NAV of Axis Large Cap Fund).

Minimum investment amount in any Mutual Fund is INR 500.

Now, this is where preference to Mutual Funds is suggested:
  • We can invest in these stocks via Mutual Funds within our budget, i.e. we can buy units in this Mutual Fund for as low as Rs.500/- (Rupees Five Hundred Only)
  • Depending on our savings budget, we can buy units in the Mutual Fund in multiples of 500, i.e 500, 1000, 1500, 2000 etc
  • We don't have to spend time on electing the stocks which may deliver good returns
  • We don't have to spend time on research on the proportion in which these stocks have to be bought.
  • Risk diversification is taken care of. 
Overall, One of the greatest benefit for opting for Mutual Funds investment, as explained above, is wecan invest in equity shares even with a limited amount of money and still get better returns on our investment as compared to other investment options.

The image shows the returns delivered by Axis Large Cap (G) fund over different time frames
                                                                                                                                                                                                                            Source: Moneycontrol


Keep checking this space for our series on more such information on Mutual Funds.

For any queries and assistance on starting investments in Mutual Funds, email us at careerincommerce@gmail.com


No comments:

Post a Comment

We would love to know what you have to say about this information.