Every now and then, you must be hearing the audio from the Ads of Mutual Funds that “Saving is not investing. Legends don’t just save, they invest in mutual fund”. Well, we know a person’s savings is the balance amount of the income he/she is left with after meeting all the expenses. And, if the person opts to utilise the saved money for some projects that can grow the money for a future goal, the Savings become Investment. The goal could be anything- daughter’s marriage, construction of home, higher studies of children, buying the dream car etc..
Even at this age where there are many ways to grow the savings some of us follow conventional methods to safeguard the saved amount. Some of us keep it safe lockers at home or at the bank. A few of us keep it in Fixed Deposit or Recurring Deposit in scheduled banks. There are a few who depend on unreliable private banks and banks of the co-operative sector expecting a higher rate of return. In any case, parking of money as described above are not coming under the purview of Investment. The test to determine if such deposits are investments involve a vital question: whether the return, principal amount plus interest, would be sufficient to meet the goal after the period of deposit? If the answer is Yes, well, it’s investment.
Unfortunately, the deposits described above are not capable of growing the money to meet the goal after the locking period. The interest rate should be much higher than the inflation rate to grow the fund to such a level that can fulfil the goal after a long period.
So what’s the alternative? How does an ordinary person grow his savings in such a way that it would be sufficient to meet his/her goals? The first thing coming to mind is to become an entrepreneur because we see that Businesses are growing. Again, it may not be possible for a salaried person. Entrepreneurship calls for a full-time attention that an employed person can’t render.
There comes the ultimate answer. That is to invest in the stock market so that one can become a partner in ownership of even companies like Reliance, TATA, Adani, Vipro, Infosys etc.. However, there are a few stumbling blocks now the investor has to face. The shares of such companies are at a higher price now. The person is not experienced in the share market to determine which share he should buy and when to buy and when to sell. Again, such monitoring calls for constant vigil and dedication an employed person may not be able to contribute.
Here come the Mutual Funds. Mutual Funds have existed in India since the 1990s. Through mutual funds one can enter the share market even with small amounts. There are Systematic Investment Plans one can start with as low as ₹500 per month. There are professional Asset Managers at Mutual Fund companies to perform the vigil and monitoring on behalf of the investor. Because Mutual Fund companies collect small amounts from several investors and buy shares of growing companies that are in the growth path in bulk, despite the amount a person invests, he/she becomes stakeholders of those companies. So as implied in the advertisement savings are converted to investment.
The interests of investors in Mutual Fund are always protected as SEBI is the regulator of Mutual Fund companies in India. In the event a Mutual Fund company behaves irresponsibly and invests in a declining company irrationally, SEBI will intervene.
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