There has been an incredible growth in the past three decades, and today we are amongst the most stable and growing economies.
Along with the economic growth, there is a regular increase in the inflation rate as well.
Since the inflation rate is higher than the post-tax returns on fixed deposits or recurring deposits, the effective value of your money is less than what you invest.Therefore, Fixed Deposits or Recurring Deposits make no sense.
What should you do so that you beat the inflation rate and earn a handsome profit?
Investing in the stock market is a good choice, but there are inherent risks as well. Mutual funds are relatively safe and reliable.
However, when the mutual funds are also invested in the stock market, how do they remain insulated by the stock market ups and downs?
Investment experts explain the reason.
Mutual funds don’t eliminate the risk but minimize it
When people invest in a mutual fund, the money is pooled and put into different stocks. Fund managers create a diversified portfolio of stocks and invest in different proportions.
Each investor gets units based on the unit price and the money invested. The unit price (popularly known as NAV or Net Asset Value) gets affected by the ups and downs, but the impact is low.
Since the money is distributed across different stocks and funds, the risk of downside gets minimized.
Also the fund manager being an expert has better skills and knowledge of managing fund.
Therefore, mutual funds are safer than equity stocks.
SIP mitigates the risk further
Unlike the stock market direct investment, you have another effective way of investing in the mutual funds; the SIP method.
When you invest in the Systematic Investment Plan or SIP, you invest a fixed amount every month (or a pre-decided frequency).
The number of units depends on the Net Asset Value of that moment. When the market crashes, you get more units of low value. When the market is up, you get fewer units of high value.
Thus, the ups and downs get moderated, and you end up with reaping big profits. It is important to know that the longer you stay invested, the higher is your profit.
Fund managers enhance profitability
Mutual funds are indeed better than any other investment provided you pick the right funds. It is always better to hire an expert who can pick funds based on your requirements.
Here, iplan uses sophisticated methodologies to select funds post investors risk profiling. Iplan actively tracks your investments and makes necessary changes as and when required.
He knows which funds are performing well. Based on the performance, an expert changes the fund. It results in maximizing the profit margin.