Many of us fancy our chances of playing the markets on our own --- especially when the indices are soaring. But here are a few good reasons why mutual funds are your best bet. Reason No 1: mutual funds have much more resources than you as a small investor to do intensive research on companies and industries. Hence the chances of them selecting the right stock at the right time are much higher. Reason No 2: Since they have collected funds from a vast pool of investors, mutual funds can invest in different companies in different industries, thereby spreading the risk across the entire economy. That’s something that you can’t do with your limited resources
We’re assuming that you still haven’t been bitten by the equity bug. But even ifyou were a seasoned investor, you would do well to remind yourself about theadvantages of stocks. One, shares are highly flexible. You can even sell them onthe same day you buy them (you can’t do that with a plot of land, can you?) Two,you have a lot to choose from, for various profiles. For instance, if you likerisk, there will be stocks that promise high returns in a short period of time.Conversely, if risk is not your cup of tea, you could go in for a `safer’ bet,and be more patient in your wait for your returns. Remember, however, that youcan never bring down your risk to zero in the stock markets.
You may earmark a smallportion of your investments for private equity to get high rewards, though theycarry high risk. Private equity in an unorganized form means investment in thecompanies of your friends and relatives, mostly as an angel investment. Privateequity in an organized form is arranged mostly by foreign banks for high networth individuals and even by some of the venture capital firms. The privateequity is invested in start up companies or turn around companies. The returnsare uncertain but can bring fortunes, if the companies really do well. It’s likeventure capital. The risks are covered by the returns from successful companies.
A chit fund quite simply is set up by a group of peoplewho come together and subscribe to a pre-determined amount on a monthly basis.The amount pooled is lent every month to the person who offers the highestnotional rate of interest.
Chit fundsappear attractive to the middle-class, working-class majority, but rememberthey’re fraught with risk. Most of these funds are not regulated, so theirpromoters are not compelled to follow laws and rules of prudent financialmanagement. Fly-by-night operators and the collapse of several chit funds havefurther worsened their image. Clearly it’s too risky an instrument to beemployed as a savings product.
Invest inchit funds only if it is reputed and you have a high level of confidence in themanagement, you can invest part of your savings in chit funds with good chitfund companies. Chit funds often give you higher returns if you do not bid forthe chits and use it as the instruments for savings. The reason is that thediscount offered by the prized bidder is shared amongst the other members ofthat scheme, after deducting the commission to the chit fund company. As thediscounting rates are the highest in the initial period of the chit subscriptionperiod the other members of the scheme get benefited with higher returns ontheir investments. However, if you draw the chits in the auction, the cost ofyour borrowing is high compared to other means of finance like bank loans.
Disclamar : The article has views expressed by the author with inputs from news articles and have no legal validation
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