Mutual funds-an asset for best long term returns. Review on Mutual Funds Sahi Hai

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As wisely said by the world's largest investor Warren Buffet, Do not save what is left after spending, but spend what is left after saving.

This statement seems very true and savings must be done keeping in mind the future requirements or one's needs. But a natural question arises in everyone's minds, Where to save and where will the savings be safe?

So, to answer this question, first of all, one needs to understand, what are the different asset classes where one can save his/her hard earned money. The different asset classes are:

1- Fixed income asset class: This asset class of savings include Bank Fixed Deposit Schemes( FD's) , Recurring Deposits( RD's) , Post Office Saving Schemes, etc

Pro's & Cons: Fixed income asset class, as it's name indicates, gives a fixed amount of income as interest on your saved money. For example, the fixed deposits give a mere 6-8% as interest which is a pre-defined rate of interest on this asset class. The only advantage of this asset class is that, there is nearly zero risk of loosing your money, as it is the safest mode of investment. This asset class is suitable for those people whose risk appetite is low, for example, as it can be for a senior citizen.

2- Gold: Many people in India traditionally believe that gold is a form of investment and so they convert most of their capital saved to gold. People find it attractive because they get the Gold in exchange of money in physical form.

Pro's & Cons: Gold must be considered the last option for investing your money as it is considered a dead investment due to its very low potential of growing over a period of time. Besides, there is also a risk of theft which cannot be avoided many a times. Actually, the problem with Gold is that it is a very slow moving commodity in terms of its price. For instance, the prices of Gold have been oscillating between 28000-32000 in last 8 years, which makes it difficult to make greater profits. Another important aspect to understand about Gold is that, one must never consider buying finished jewellery or gold ornaments for investment purpose. One must opt for gold coins or gold bars instead, and that too from certified merchants as the purity of gold must always remain a concern.

3- Equity-linked asset class: There are basically two modes of investments in equities. One is through buying of shares of a company from open market on your own through your demat account. And the other is through investing in equities through mutual funds in which an experienced fund manager of an asset management company buys shares every month for a fixed amount invested by the investor through SIP's.

Pro's & Cons: This is the most risky asset class if one decides buying shares from open market on his own because this requires a lot of expertise and research as there are many economic factors which determine the share price of a company. There are daily fluctuations in the share price of a company in the market which always has a risk of an investor getting trapped in the downtrend of a stock. Now, there might be downfall in the market for a short term or a medium term period, but when the history of the market is studied, it focuses on the fact that the market and a country's economy keeps rising in a long term perspective. So, in order to earn high and steady returns from the stock markets, one must keep his investment view for a long term.

The longer the term, the higher will be the returns. This is because, the stock market investments work on the principle of compound interest. Albert Einstein has rightly said, Compound Interest is the 8th wonder of this world, one who understands it, earns it and one who doesn't, pays it.

The idea of investing in share market through mutuals funds was developed in order to inculcate the habit of saving every month, drop by drop, so that one day, it forms a large ocean. For this purpose, SIP's( SYSTEMATIC INVESTMENT PLAN) are the best tools to slowly add your capital to earn big.Even while investing in mutual funds, one must regularly assess the performance of his selected funds, and make necessary changes if your funds under-perform.

There is another one thing to be noted regarding mutual funds that, the government of India has recently introduced LTCG( Long Term Capital Gains) Tax, which is 10% of the capital gain in the long term on all your investments in various asset classes. One must be aware of this fact too while planning his financial goals.

Hope this review proves to be useful for the readers, as there is a lack of financial literacy in our country. And be wise while investing as I can rightly say that, Mutual Funds Sahi Hai