Is Mutual Fund A Safe Investment Option?

Today, mutual funds are a popular investment instrument, especially among young Indian professionals. Furthermore, convenience is one of the key features of mutual funds that has increased their popularity. Thanks to technology, you can also invest and manage your money online from the comfort of your home.

Do you want to invest in mutual funds but are worried about losing money? Do you feel it is safer to invest directly in the stock market? Are you terrified of investing in a scheme and then being conned by the fund house? If you are planning to invest in a fund recommended to you by a colleague, is that mutual fund safe?

If you are plagued with such questions, this article is for you. Let us look at how mutual funds work, what are the risks involved, and if they are a safe investment option.

How do mutual funds work?

Mutual funds are pools of money. A fund house or AMC (asset management company) collects money from several investors who share a common investment objective. Then, it invests the same in equities, bonds, money market instruments, and other securities.

Subsequently, the income and gains generated from this collective investment are proportionately returned to the investors. 

When you, as an individual, invest in a mutual fund scheme, you actually purchase units of a mutual fund at their current NAV (net asset value) or the market value of a unit. When this NAV increases, so does the value of your investment.

Are mutual funds a fraud?

Not at all! Mutual funds are a safe investment option. They are not get-rich-quick schemes where you can lose your money overnight. Mutual fund companies are controlled and supervised by two main regulatory agencies:

• Securities and Exchange Board of India (SEBI)
• Association of Mutual Funds in India (AMFI)

These agencies carry out due diligence before giving a company the license to run a mutual fund scheme. So, don’t worry about mutual fund companies absconding with your money!

What about the risks involved in mutual fund investments?

Every investor is familiar with this warning:  mutual funds are subject to market risks. What this means is that when you invest money in a mutual fund, the fund managers use it to buy market-linked assets and securities. As the market fluctuates, so does the value of your invested money. But this is how mutual funds generate returns. So, how do they achieve this? Is mutual fund a safe investment option despite these risks?

Remember that the purpose of investing in mutual funds is to earn higher returns than those of low-risk investment avenues like fixed deposits, savings accounts, and recurring deposits. These high returns are possible because of:

• Extensive market exposure
• Professional management of funds (unlike direct investments in the stock market)
• A long time spent in the market and the benefit of compounding

So, don’t be disheartened by short-term losses due to market ups and downs. Never panic-sell your mutual fund units when you suffer a loss. Stay invested for the long term, and allow your money to grow over time. Not only will you enjoy superior returns, but they will also be higher than the prevailing inflation rates.

Is it safe to invest in mutual funds now?

Here is a handy list of the features of mutual funds that make them an attractive investment avenue:

• They help investors beat inflation.
• They hire expert fund managers.
• They offer the convenience of investing. You can invest within minutes through online channels.
• They allow you to diversify your portfolio
• They offer considerable liquidity
• Since they invest in a number of securities, they have a higher return potential than other investment options like fixed deposits.
• Mutual funds are 100% regulated by the SEBI and the AMFI. They offer complete safety and transparency.

Start investing in mutual funds with Moneyfy

Once you understand how they work, mutual funds are a safe investment option for beginners. Make sure you choose the right mutual fund scheme that aligns with your investment goals. So, is it safe to invest in mutual funds now? Well, the time has never been better!

Tata Capital’s Moneyfy app has been designed keeping in mind the needs of those who want to get started with mutual funds. With Moneyfy, you can set a financial goal and assess your risk profile in minutes. Then, the app will recommend mutual funds tailored to your needs. Once you find a mutual fund scheme that serves your financial goals, you can start investing. What’s more, you can manage your portfolio conveniently through a single dashboard.

Moneyfy also offers inbuilt goal-based investment tools like SIP calculators so that you can plan and invest confidently. So, if you have been hesitating to invest in mutual funds, check out Moneyfy. Download the app now. Visit the website to know more.