Mutual Funds

Mutual Funds vs. Bank Savings vs. Direct Equity

Money that sits in your Savings A/c earns less than 4% for you each year, while money invested in mutual funds has the potential of earning anywhere in the range of 7% to 25%, if not more. That’s the first good reason to invest in mutual funds.

Naturally, because mutual funds provide a higher rate of return than banks savings, more people are turning to mutual fund investments each day. At the same time, there is a lot of speculation around whether it is safe to invest money in mutual funds.

Because mutual fund investments are essentially investments in shares and debentures, they are linked to the stock market, and tend to be more volatile and dynamic as compared to investments in land or gold.

When it comes to returns on investment, there’s a simple thumb rule that many seasoned investors tend to go by — ‘The higher the risk, the higher the return.’ This doesn’t mean one should invest in high risk mutual funds blindly. Nor does it mean that one must always play extremely safe. Direct equity investments tend to give even higher returns in the long run, provided one has invested in the right companies after thorough market study.

At the same time, it is considered safer to invest in mutual funds, than to invest directly in the stock market by purchasing shares of few individual companies, unless you are an expert investor. This is because, a mutual fund is a mixed bag of shares and debentures of different companies either from the same industry, or from different industries, managed entirely by expert fund managers whose full time job is to keep a watch on markets and factors influencing markets.

Wondering if it is safe to invest in mutual funds? Read: Is It Safe to Invest in Mutual Funds?

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