Being equity-linked and service-driven, MFs also have their own "risks" and "limitations" leading to "under-performance" at times.
1. Risks with MFs investments are:-
a) Market-related: due to macro-economic factors,
b) Company-related: due to negative news and performance,
c) Interest-related: especially in debt funds, due to unanticipated rate fluctuations, and
d) Credit-related: due to corporate defaults and delays in payment obligations.
2. Limitations with MF investments are:-
a) Money-related: due to mandate of deploying limited amounts and ratios in chosen stocks as per investment objective,
b) Review-related: due to adjustment of variations for optimizing returns,
c) Fund manager-related: due to his own investment style as well as the leeway given by the fund house,
d) Expense-related: due to statutory caps on expenses during launches as well as operations, and
e) Returns-related: due to various auto-balancing and less-risk mechanisms of fund houses introduced from time to time.
3. Keeping them in view, the "real benefits" of investing in Equity MFs are:-
a) Professional management of our investments, purchased at a price paid through a capped expense ratio, saving our valuable time and effort for utilizing them elsewhere,
b) Scope of deploying our limited amount of hard-earned money in a basket of companies' stocks in a regular systematic way,
c) Creating a diversified equity portfolio, thereby reducing risk of capital erosion to a great extent, by avoiding self-inflicted unsystematic risk,
d) Liquidity of our money by easily selling MFs units at ongoing NAV,
e) Freedom of choice by "switching" our MFs suiting our individual needs and risk appetite, and
f) Safety of our investor rights through Sebi's regulated environment.
1. Risks with MFs investments are:-
a) Market-related: due to macro-economic factors,
b) Company-related: due to negative news and performance,
c) Interest-related: especially in debt funds, due to unanticipated rate fluctuations, and
d) Credit-related: due to corporate defaults and delays in payment obligations.
2. Limitations with MF investments are:-
a) Money-related: due to mandate of deploying limited amounts and ratios in chosen stocks as per investment objective,
b) Review-related: due to adjustment of variations for optimizing returns,
c) Fund manager-related: due to his own investment style as well as the leeway given by the fund house,
d) Expense-related: due to statutory caps on expenses during launches as well as operations, and
e) Returns-related: due to various auto-balancing and less-risk mechanisms of fund houses introduced from time to time.
3. Keeping them in view, the "real benefits" of investing in Equity MFs are:-
a) Professional management of our investments, purchased at a price paid through a capped expense ratio, saving our valuable time and effort for utilizing them elsewhere,
b) Scope of deploying our limited amount of hard-earned money in a basket of companies' stocks in a regular systematic way,
c) Creating a diversified equity portfolio, thereby reducing risk of capital erosion to a great extent, by avoiding self-inflicted unsystematic risk,
d) Liquidity of our money by easily selling MFs units at ongoing NAV,
e) Freedom of choice by "switching" our MFs suiting our individual needs and risk appetite, and
f) Safety of our investor rights through Sebi's regulated environment.