When selecting mutual funds, it is important to have a clear understanding of different investment schemes available in the market. Investing in Mutual funds is a very safe way to make money without taking any risks. However, as with all investments, there is a certain amount of risk involved in these types of funds. Before investing in mutual funds you should always have a clear understanding about them. To get full clarity on an investment scheme, you should ask yourself the following questions
What is the income potential? Most of the mutual funds in the market today offer many options in terms of income generation. The key is to identify the scheme that can be the most appropriate for you For instance, in case of those who are looking forward to earning from the increase in the value of the equity, then they should invest in equities. If you are looking for high return on short term basis, then you can go for bond and commodity securities.
Which are the different investment schemes available? Today, many investors are investing their money in the money market funds and bond schemes. Money market funds are usually managed by professional investors and offer a higher rate of interest over a longer period of time. Most of the investors prefer the money market funds because of the safety that it offers. They also enjoy the easy rate of return and the fact that these are relatively easy to access as compared to other investments.
Is there scope for tax breaks? Some of the mutual fund companies offer tax benefits to investors who invest in their schemes. For instance, most of the NPA schemes do not attract any income tax. The tax benefit is received only if the amount invested exceeds a certain amount, which is mentioned as the threshold.
Can you invest 50k wisely? Another important question that would arise when considering the different investment schemes is whether you can invest the money in multiple instruments. If you are able to invest the amount in several instruments like the bonds, stocks and shares and have them gain in value at a constant rate, then you will definitely be able to invest 50k wisely.
You need to keep in mind the investment objective first before investing your money. There are many investors who just want to make money by investing in the stock, bonds and the equities schemes. All these are the perfect vehicles but you need to have a clear idea of the investment objective so that you can choose the right plan easily. If you want to increase your wealth and ensure a secure future, then the best option is the equity schemes and the mutual funds apart from the whole stocks and the mutual funds.
When you compare the equity plans with the other mutual schemes, you need to look into the return profile very closely. Usually the mutual schemes pay higher returns when investing for a short period of time as compared to the growth rate of the plan over a longer period. So, it is always better to go for the short term investment plan if you have a limited time frame in mind. The difference between the growth rate of the whole plan and the annual return can be a major deciding factor while choosing between the different equity investment plans.
The other factor that most investors consider while choosing between the different plans is the tax benefits and the cost effectiveness. The tax benefits of the scheme depend on the individual choice of the investor. The tax benefits of some schemes are absolutely free and the others have limited tax benefits. It is a common mistake among the investors to choose the plans with limited tax benefits and invest the money for a long-term plan without thinking whether they could save enough to meet their needs in case of an emergency.
