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Mutual Funds – Why they just might be the best option you have

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Why mutual funds might be the best option for you
Imagine you are 25 year old who has just started your career and you are wondering what you can do with all that money that has started trickling into the bank account. Should you just leave it in the bank account? Should you be buying real estate or even better should you be making some speculative investments in the stock market? Every one does it so why shouldn't you?

Well as everyone knows, no one is spared from the vagaries of the stock market or the real estate market and therefore, the meager returns earned by keeping your money in a bank account may not be the best decision for you. One of the other options staring at you is to be investing in Mutual Funds so should you be investing in them?

 

Now there are several things that completely suck about Mutual Funds. For starters:

 

NEGATIVES:

Hidden costs and complicated prospectus -Financial Documents are like Insurance Policies as they are incredibly complicated and complex for an average person like you and me to be able to completely understand. Also, what makes it incredibly frustrating is that there are several costs associated with buying a Mutual Fund that an investor is not made completely aware of at the time of buying the fund.

This is one area that we are trying to eradicate by making some of the numbers that we hardly pay attention to, come out in the open.

Over-diversification - There are any Mutual Funds that own too many holdings that ends up destroying the benefits offered by diversification. It's upto you and me to select funds that we believe have an ideal set of holdings so that we can gain the benefits of diversification accordingly.

Portfolio Turnover and Lack of Control - Portfolio turnover ratio gives us an indication about how frequently the holdings within the fund are bought and sold. It's important to us because if the holdings are brought and sold more frequently then it has a direct effect on the transaction costs that you will have to bear. This is something you have no control over, as it is upto the discretion of the portfolio manager.

However, having said this - you might wonder what is good about Mutual Funds? and why are we at TriVest Folio encouraging you to build a portfolio of Mutual Funds?

POSITIVES:

Professional Management - One of the biggest reasons why we believe that Mutual Funds is a good avenue to start investing for busy working professionals is that you get the convenience of your investment being professionally managed. Without having to bother about picking or betting on individual stocks, you now have the option of having it professionally managed based on your investment strategy.

Diversification - Mutual Funds come with the instant benefit of diversification where a fund consists of several securities based on the strategy. Owning different funds would allow you to build a completely diversified portfolio that can protect you to a certain extent as compared to a concentrated portfolio when the market tanks.

Low Minimum Initial Investment - For relatively low prices you can own a Mutual Fund that is not only professionally managed but also costs lower than having to do it by yourself.

Disciplined Investing through Systematic Investment Plan (SIP) - For those of you who decide to invest through the Systematic Investment Plan (SIP), you are able to become a disciplined investor by setting aside a nominal pre-fixed amount every month which goes towards your Mutual Fund. You not only gain the benefits of rupee cost averaging which means you set aside a pre-fixed amount irrespective of whether the markets are going up or going down thus removing emotion out of investing and imbibe the character that every investor should have and that is of discipline when it comes to investing.

For these reasons, we at TriVest Folio strongly believe that Mutual Funds are a good avenue for those looking to invest a portion of their savings. To be able to succeed you need to be able to be disciplined with your investing strategy with a strong focus on the quality of the investment rather than follow the ups and downs that the market brings. That is why we at TriVest Folio will do our best to provide you with all the tools to build a diversified portfolio and help you get disciplined at the process of investing.

Sandip Southekal

The author is co-founder TriVest Folio. For more details visit TriVest Folio

Read more about: mutual funds sip
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