Let's Talk Money by Monika Halan

Author:Monika Halan
Language: eng
Format: epub
Tags: null
Publisher: HarperCollins Publishers India
Published: 2018-03-05T16:00:00+00:00

9

MUTUAL FUNDS

There is no money box without mutual funds. There is a product for every situation and regulation that puts your interest first.

A long time ago, a child grew up in a house whose both parents were business journalists, and one of them specialized in personal finance. The kid grew up hearing terms like asset allocation, fiscal deficit, inflation and capital gains. So, in school they did this exercise, when she was about ten years old.

Imagine that you have Rs 5 lakhs. What will you do with it? Kids did what kids do – they bought dolls, cars, chocolate, Disneyland trips, ice-cream mountains, PlayStations. One kid made a business plan. Rs 3 lakhs for a dog kennel business, Rs 1 lakh in mutual funds, and Rs 1 lakh for two dogs and cats as pets for her.

The dog business will give her Rs 10 lakhs a year. This she would distribute among various family members, and part of it would get her even more pets. Yes, I do think we damaged our kid somewhere – I’m sure this is not normal.

So what are mutual funds? These are also stocks, right? No. They are not. They invest only in equity, right? No. They invest in many things; equity or shares is just one of the many things funds buy. They invest in bonds, gold and soon real estate. You can build your entire portfolio by buying mutual funds across these asset classes. And from within the asset class, you can build a diversified portfolio for all your short-, medium- and long-term needs.

Apart from my one house in which I live, and my PF, all my money is in mutual funds. So, what is a mutual fund and why do I like them so much?

Imagine that you are setting out on a long trip. Think about the way you travel – will you drive your own car, take the train or take a flight? If you drive your own car you need to first know how to drive, know the routes, look after the maintenance of the car and your safety yourself. And, of course, get ready for a long hard drive ahead. If you take a train or a flight, you are handing over the responsibility of getting to your destination to the experts, to the railway and the airline whose job it is to ensure you reach safely on time at a reasonable cost.

Think of investing in a similar manner. You can choose to do it yourself. For that you need to have the time, the knowledge and the capacity to do the work of choosing stocks, building a portfolio and managing it. Or you can hand over the job to professionals whose aim in life is to manage your money.

A mutual fund is a way to pool the money of a large number of small investors and hand it over to experts to manage it. Look at it like this: If your monthly saving is Rs 5,000 or Rs 25,000 or even Rs 2 lakhs, trying to find a way to invest it in the market is tough.

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