Tejas Consultancy

Many of us fancy our chances of playing the markets on our own --- especially when the indices are soaring. But here are a few good reasons why mutual funds are your best bet. Reason No 1: mutual funds have much more resources than you as a small investor to do intensive research on companies and industries. Hence the chances of them selecting the right stock at the right time are much higher. Reason No 2: Since they have collected funds from a vast pool of investors, mutual funds can invest in different companies in different industries, thereby spreading the risk across the entire economy. That’s something that you can’t do with your limited resources.

You Can Earn More On Short-term Funds How many of you have, say, around Rs 10,000 in a savings bank account or a fixed deposit account for a short period, say a minimum of 30 days? You can earn higher returns by putting the money in a money market mutual fund. There is no tax deduction at source on redemption, interest earned may be higher than that on a term deposit and dividends are tax-free. Which means higher post-tax returns. What’s more, you could redeem the investment and be liquid within 24 hours.

MUTUAL FUNDS ARE NOW LIKE BANKS

Today, it’s difficult to tell the difference between mutual fund schemes and bank deposits. Mutual funds send you an account statement every month, and whenever you invest or withdraw cash. Some funds have even begun offering a limited cheque book and ATM withdrawal facilities. Other funds offer a tele-transaction facility. They give you a personal identification number (PIN), by which you can deposit or withdraw money from the fund. Two very innovative facilities being offered by mutual funds are the systematic investment plan and the systematic withdrawal plan. The former allows you to give post-dated cheques for opening an account that’s similar to a recurring deposit. If you opt for the systematic withdrawal plan, you will get post-dated cheques that you can encash periodically

WHAT HAPPENS TO MY BANK DEPOSIT?

Since we’re telling you that investing in mutual funds is advisable, you must bewondering: “So does that mean that I should not keep my money in bank deposits?”Well, always remember the cardinal rule of asset allocation. Never put all youreggs in one basket: bank deposits, mutual funds, real estate, gold etc ---they’re all several avenues to park your money. The trick, however, is inrealising how much to park in which avenue. Given that even theaverage-performing mutual funds give higher returns than a bank deposit, youobviously should be biased towards mutual funds --- or at least the well managedones. What’s more, mutual funds today are offering the same facilities as a bankdeposit. This doesn’t mean that you dump all your money in mutual funds. Keep abit in the bank deposit, but remember that the mutual fund is one of the bestoptions going today.