2024 is at its tapering end and what a year it has been for the Indian Mutual Fund industry! Most months of the year it closed on a higher mark than the last.
The growing investment in Mutual Funds reflects the growing confidence and familiarity with building long-term wealth in the Indian population.
This article explores what mutual funds are, the different kinds available, and why they’re a smart choice to grow your wealth.
If you’re just starting out in investing or want to learn how mutual funds can benefit you, read on!
Growth of the Indian Mutual Fund Industry
Mutual funds gather money from many investors like you. Professionals manage this combined money and invest it in various asset classes such as stocks, bonds, gold, and even global markets. The great thing? You don’t need to be a financial expert to invest.
To put it in simple words, mutual funds resemble a buffet. You pay a set price, and instead of one dish, you get a range of choices helping you distribute risk and reap multiple advantages.
India’s mutual fund industry has been on a growth trajectory. As per the Association of Mutual Funds in India (AMFI), ten years back, in November 2014, the industry’s AUM was ₹10.90 trillion. Now, that number has jumped to ₹68.08 trillion, six times more in just ten years.
This growth comes from more people being financially aware, easy-to-use mutual fund platforms, and government plans like tax-saving options under ELSS (Equity-Linked Savings Schemes).
Take Systematic Investment Plans (SIPs), for example. They’ve played a big part in this growth. Additionally, monthly investment in SIP crossed ₹25,000 crore mark in October, showing how young Indians are getting into regular investing.
Several factors have an impact on the growing popularity of mutual funds in India:
- Diversification: Mutual funds help to spread risk by investing in a mix of assets and hence diversifying your assets.
- Professional Management: Expert fund managers make investment choices for investors.
- Accessibility: Options like Systematic Investment Plans (SIPs) allow investors to begin with small amounts, making it easier for newcomers to enter the market.
How to Start Investing in Mutual Funds
Starting to invest in mutual funds in India is easy:
1. Set Your Money Goals: Think about why you’re putting money away. It could be for your child’s education, a new car, a trip, or retirement.
2. Pick the Right Fund: Find a fund that fits your goals and how much risk you’re okay with. For instance, you should go with stock funds if you want growth over time, or bond funds if you need stability soon. To make smart investment choices, you need to understand the different types of mutual funds:
- Equity Funds: These put money into stocks and try to increase capital. Equity funds fit long-term plans but carry more risk.
- Debt Funds: Putting money into fixed-income papers like bonds, these funds have less risk and give regular income making them good for short to medium-term plans.
- Hybrid Funds: These funds put money into a mix of stocks and debt striking a balance between risk and return.
- Index Funds and ETFs: Index funds and ETFs follow a specific market index like the Nifty 50. They cost less and are becoming more popular among Indian investors
3. Begin a Regular Investment Plan (SIP): SIPs let you put in a set amount regularly. This will help you invest more and buy stocks when the prices are low.
4. Keep an Eye on Your Investments: Check your portfolio now and then to make sure it still matches what you want. Change things up if needed.
5. Consider Various Factors: While mutual funds offer several benefits, it’s essential to be aware of certain aspects:
- Market Risks: Investments are subject to market risks, and past performance doesn’t guarantee future results.
- Expense Ratios: Funds charge fees for management and operations, which can impact your returns.
- Investment Horizon: Align your fund selection with your investment horizon to meet your financial goals effectively.
What’s New in the Mutual Fund Industry
The mutual fund industry in India is changing, and we’re seeing some interesting shifts:
- Increased Inflows: Despite market volatility, equity mutual funds have seen consistent inflows, indicating growing investor confidence.
- Rise of Passive Funds: With low-cost index funds and ETFs gaining traction, more investors are opting for these straightforward investment options. Passive funds are great for beginners because they simply track the market.
- Technological Advancements: From apps to robo-advisors, technology is making mutual fund investing seamless. Digital platforms have made investing more accessible, allowing investors to manage portfolios online with ease.
- Sustainability and ESG Funds: Environment, Social, and Governance (ESG) funds are gaining popularity as investors seek companies that are socially and environmentally responsible.
Conclusion
Mutual funds have become a significant part of India’s financial ecosystem, offering opportunities for wealth creation and financial planning. For investors, these funds open doors for professional investment management and risk management.
When you grasp the fundamentals and keep up with market shifts, you can make smart choices about where to put your money that match your financial goals. Happy investing!
