Save across Asset Classes

In India, any reference to mutual fund investing by retail investors is equated with investing in stocks through the mutual fund route. Industry veterans say this belief has its roots in the fact that, till about five years ago, mutual fund distributors earned hefty commission selling equity funds, and hardly got anything for selling debt and liquid funds. That, in turn, prompted them to sell equity-based mutual funds even to new investors.

In contrast, novice investors should ideally have been given liquid funds as a starting point in their mutual fund investing experience.

This is because, in the mutual fund space, liquid funds carry the lowest level of risk while equity funds carry a very high level of risk.

Ideally, a new mutual fund investor should have been introduced to a low-risk product and then slowly taken up the risk lad der to equity funds and other risky fund schemes, according to industry experts.

That, however, did not happened Indian mutual fund investors were straightway introduced to the high-risk schemes. This distorted the retail investors' view about mutual fund investing, thinking this to be a risky affair while the reality is in India this is one of the most well-regulated, less risky, very tax-efficient and highly cost-effective way of investing. In addition, since some new investors also lost money because they were invested in equity schemes even for their shorter m investing needs, they completely turned away from investing through the mutual fund route, according to industry veterans.

It's the opposite which should be true and, in fact, is. Mutual funds can help you invest for any time frame -from a week, a year, a decade to an en tire lifetime. They can also help you to invest in every major asset class -from debt-fixed income to equities, from commodities to cash. Real estate funds are also expected soon. So, one can see that MFs are well equipped to invest for practically any financial goal and through most major asset classes. Mutual funds also serve investors by matching their investing styles, ability to invest, etc. Within mutual funds, there is something for both aggressive and conservative investors, short and longer m goals and people with different income levels, risk appetite and age groups. Effectively, mutual funds offer a wide variety of investment options - equity schemes, fixed income schemes, money market schemes, balanced schemes, MIP plans, E T F s (exchange-traded funds), etc, which you can choose as per your needs and situation.

For instance according to Doctor, for temporary parking of funds (that is, till you decide how to spend or invest it) and also for an emergency fund, people typically park money in cash, banks' savings accounts or fixed deposits.

However, liquid funds are a good alternative for such cash management needs. As the name suggests, they offer quick liquidity, no entry and exit costs and higher returns than a typical savings bank account. In fact, one can also transact through SMS or ATM debit card. So the 24X7 convenience factor is also there in these funds.

Another example is buying gold for weddings or other social events in the family. In gold ETFs and gold funds, you have a safe, convenient option with affordable unit sizes to accumulate gold. They come without the hassles and risks involved in buying and storing physical gold.