Want to save for a rainy day and don’t know where to put the extra money? Although the investment paths are multiple, but more versatile are the reasons why a person plans to save. Some just want to set aside a portion of the money and use it in the future when a large corpus is built (which is no more than the sum total of the amount saved each year), while others want their money to come back to them after it grows.

The old habit of keeping money in savings accounts at banks has somewhat lost many of its stakeholders; the reasons are many to cite. Interest rates have dropped dramatically of late, one of the most popular reasons to get started. In addition to these, new investment options have appeared in recent times and have exceeded expectations. Therefore, investing in mutual funds has proven to be an attractive option for those investors who are profit oriented and do not want extra money.

If you look closely, people have been saving since time immemorial. Mutual fund companies have just given a systematic disguise to people’s saving habits. When mutual funds did not exist, a group of people collected a specific amount from each member and, as a lottery, declared the beneficiary of the money raised in the month. (This system still works on an informal level!)

Now let’s take a look at mutual funds that are somewhat analogous to this practice of pooling money. Companies that operate mutual funds not only raise money from investors, but also look for assets such as company shares, debt instruments, and other assets that are considered profitable options. The money invested by individual investors and collected by fund managers is used for infrastructure developments, to carry out an ambitious infrastructure project of a company or to bring some technological innovation, which is of great use to the inhabitants of the country. . All these reasons open the way to the possibility of making the money that investors give to their managers profitable, from the point of view of savings.

Investment in mutual funds grows due to the power of compounding and cost-return averaging. By handing over your money to the fund manager to invest, you are handing over the responsibility of managing your corpus. Therefore, you reinvest the returns earned on your money at a constant rate each year and other returns generated in the form of interest, dividends, etc. also keep adding. Therefore, there is a noticeable increase in the amount you invested at the end of the investment period. This is the fundamental principle behind how a mutual fund works.

The above performance figures reveal that investors who relied on mutual fund investments were able to earn an average return of 15-20%. Sometimes, it has also grown up to 30-40%. Since there is a clever mix of market-oriented and debt-based options in a typical mutual fund, the risk is also comparatively less, compared to purely equity-based instruments such as stocks.

Thus, by saving in mutual funds, an investor fulfills a variety of purposes:

1. You can earn extra money with your own savings
2. It is contributing indirectly to the economic development of the country.
3. You are creating extra income for yourself to cover unexpected expenses.
4. And last but not least, he is also securing his future.

Costs involved in investing in mutual funds, including transaction costs, asset management cost, holding fees, and other implicit taxes. Therefore, the amount actually invested is your money minus all taxes. Mutual funds work despite all these costs, such is the power of compounding. To get more out of your money, it’s a good idea to hold your money for the long term. So, if you’re looking for the investment option that performs like a stock but is safer, then mutual funds might be the smart choice.