MARRIAM NASIR, Manager Research
Apr 02 - 08, 2007

Capital markets interest people, albeit not all for there are several problems associated. Everyone wants to earn some money and that needs a brain certainly in terms of expertise (technical) and timely execution. There are few points to gauge investments problem of a common man.


First issue is that of expertise. While investing directly into capital market one has to be analytical enough to judge the valuation of the stock and understand the complex undertones of the stock. One needs to judge the right valuation for exiting the stock too. While in mutual fund money is managed by a team of professionals hence maximizing the expectations of returns.


It is very difficult for a small investor to keep track of the movements of the market. Entrusting the job to experts, who watch the trends of the market and analyze the valuations of the stocks will solve this problem for an investor. Mutual funds specialize in identification of stocks through dedicated experts in the field and this enables them to pick stocks at the right moment. Sector funds provide an edge and generate good returns if the particular sector is doing well.


Next problem is that of funds/money. A single person can't invest in multiple high-priced stocks for the sole reason that his pockets are not likely to be deep enough. This limits him from diversifying his portfolio as well as benefiting from multiple investments. Here again, investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. This not only diversifies the portfolio and helps in generating returns from a number of sectors but reduces the risk as well. Though identification of the right fund might not be an easy task, availability of good investment consultants and counselors will help investors take informed decision.


Internationally Children funds have found their way in a big way with many of the fund houses already having launched a children fund. Essentially debt oriented, these schemes invite investments, which are locked till the child attains majority and requires money for higher education. You can invest today and assure financial support to your child when he/she requires them. The schemes have given very good returns of around 14 percent in the last one-year period. These schemes are also designed to provide tax efficiency. The returns generated by these funds come under capital gains and attract tax at concessional rates. Besides this, if the objective was to save taxes, the industry offers equity linked savings schemes as well. Equity-based funds, they can take long-term call on stocks and market conditions without having to worry about redemption pressure as the money is locked in for three years (e.g BMA Principal Guaranteed Fund) and provide good returns.


The benefits listed so far have essentially been for the small retail investor but the industry can attract investments from institutional and big investors as well. Liquid funds offer liquidity as well as better returns than banks and so attract investors. Many funds provide anytime withdrawal enabling a big investor to take maximum benefits. The investor in a bank deposit at a particular rate can not get the gains of increase in market rate of interest but this element of risk is not there in Mutual Funds.