Are DADs right about Mutual Funds? PART I

* A Conversation between DAD and Vamika after she got her first salary * 

Dad : Salary aa gayi? FD khol do !

Vamika : Nahi Papa, FD ke lia Time he ! I am thinking about other investments.

Dad : Other investments? Gold? Property? Silver?
Vamika : No Dad ! I am thinking of Mutual Funds.
Dad : Mutual Funds? What do you know about Mutual Funds?
Vamika : (in dilemma) Not Much
Dad : Not Much? Don't you see on TV? Market Risk? Paise doob jayenge Saare !
Vamika : But Dad !
Dad : I do not want to hear anything ! FD is safe and simple , Baki kuch nahi.
Vamika : (uncertain about investment) okay DAD !

So what does Vamika do next?

So, Vamika decides to call her friend Ziva , who has good knowledge of finance and investments.....

*Vamika tells Ziva about her concerns and ask her for advice*

Vamika : Hey Ziva , Tell me what should I do?

Ziva : Your Dad is not completely wrong !

Vamika : So Mutual Funds are risky?

Ziva : Yes they are and they are not...! 

Vamika : (confused) 

Ziva : Your dad is right about one thing.

"Mutual funds unlike FD and RD are dependent on market risk. Market risk means economic activities happening in market. You cannot just fill a form and put money there. Mutual funds carry a certain amount of risk too. You can loose all the money or end up making high loss too."

Vamika : What Risks?

Ziva : The risks are as follows :

• There are vast number of portfolios to invest, you cannot just invest in one. Diversification is necessary. 

•  Your Principal amount you invested isn't safe always. Market collapse can takeaway all money. 

•  There are multiple magnitude of RISK Factors involved. 

•  You cannot directly manage Mutual Funds, You will need a good manager or agent. 

•  You might not get interest rate as speculated. 

•  Without individually researching or without a good financial advisor, One should not jump into Mutual Funds. 

Vamika : What about Fixed Deposits? Are they Safe?

Ziva : Let me tell you about FDs !

What are FDs?

FDs are one of the safest way to invest your hard earned money. Remember The Gullak ? There used to be a scheme at some shopkeepers, if you give them Rs.100 in coins(liquid cash), they use to give you between Rs.5-Rs.10 extra above the Rs.100. That is what we call interest over principal amount.

Who gives us Interest?

Banks are large financial organizations who carry out monetary transactions and are centralized institute backed by RBI with some safety net. The basic job of bank is to keep the deposited money of consumer safe and lend money to borrowers and gain profit from interest. Since they are centralized and  they backing from RBI, also known as Mother of all Banks, they are considered safe. However, there are many private and small co-operative banks which provide a bit higher interest rates to allure the customers, but one should always check the background and financial reports before depositing their money there.

It is advisable to trust nationalized and reputed private banks for a rookie for investment as they offer better safety during crisis.

Fixed Deposits are the amount of money which are saved in a bank in a different format fixed for a certain period of time. Bank provides fixed interest rates depending on inflation, economic scenarios and many other financial factors. People who are new to investment shall practice traditional investment  schemes like FDs before getting started with Mutual Funds or stock markets. They provide a basic net of earning and are considerably safer and more preferred during crisis. 

The pros and Cons of Fixed Deposits can be listed as :

**8. Flexible tenure

Vamika : (gets confused) I do not get it ! So FD is  better?

Ziva : Depends on YOU !!!

Vamika : 

Ziva : Wait !!!! LET ME EXPLAIN about Mutual Fund....

ZIVA !!! Explain us too !!!

...next article coming Soon