Over the last two years, the world of money has changed for Indians. Interest rates have come down dramatically. Borrowers have become more powerful than ever before, with plenty of lenders slugging it out for their attention.

For investors, however, the choices have become fewer. Investment options such as the 8% Reserve Bank of India [Get Quote] (RBI) bond have died. Bank fixed deposits, the most preferred investment for decades, have lost their sheen. Stock market has boomed all right, but the risks have increased too.

In this scenario, one investment choice stands out -- the mutual fund. Mutual funds offer everything an investor looks for: easy availability, risk containment, liquidity, transparency, professional management and decent returns.

What's more, you don't need millions to invest in a mutual fund. Standard Chartered Mutual Fund, for example, allows investors to start with just Rs 500! Investors seem to have accepted the importance of mutual funds; for many, they now constitute the most important part of their portfolios.

Which is the right fund for you?

Mutual funds suit all classes of investors. You may choose a fund depending how much risk you are willing to take and when you want the money back. Go for an equity fund if you don't mind a little higher risk.

If you are slightly risk-averse, prefer a balanced fund, which invests in stocks only up to 60-70%. If you are largely risk-averse, stick to debt funds. Have very little appetite for risks? Choose liquid funds like Cash Funds or short term floating rate funds.

You may also choose funds based on when you want your funds back. Look at a cash fund if you need the money in a few weeks. A short-term bond fund would just be fine for you if you expect a return in three to six months.

An income fund or an equity fund would fit in if you can afford to leave it with the fund manager for over a year.

Even within each category, you can pick and choose. In equity funds, for example, you have a variety of options: blue chip funds, mid-cap funds, contrarian funds, opportunity funds, dividend yield funds, sectoral funds that invest specifically in select business segments etc. Equity-linked savings schemes allow you to reap tax gains up to Rs 1 lakh (Rs 100,000) a year.

You may want to invest but may not have a large corpus right now. Not to worry. Stash away a little every month. Many equity funds offer the option of systematic investment plan (SIP) that allows you to invest a certain sum every month or every quarter. This way, you not only discipline your investments but to a great extent can protect yourself against the vagaries of the market.

Debt funds don't lack lustre either. Choose among medium term debt funds, short-term bond funds, floating rate funds, dynamic bond funds and cash funds. If you want an aggressive debt fund, then go for gilt funds. If you prefer a mix of both equity and debt, MIPs or balanced funds would do just fine.

Transparency

A mutual fund is nothing more than a collective savings pool. Several investors have come together to invest in stocks, bonds or in both. That is all. However, mutual funds are strictly regulated. They have to declare their portfolios from time to time. Almost all the funds declare their portfolios every month.

The net asset value (NAVs) of a fund, which points to how much a unit of the fund is worth on a particular day, is declared every working day. You know where your money is going and how it is doing.

Availability

A few years ago, even if you wanted to buy a mutual fund, it was not easy. Few distributors, most of them small, sold mutual funds. The quality of their advice often left a lot to be desired. But today, you could buy mutual funds in over 60 cities or towns, either through their own offices or through banks.

All private sector banks now sell mutual funds across the counters in most branches. Some public sector banks too have begun marketing mutual funds through select branches. As for advice, only a person who has qualified in a rigorous test conducted by the Association of Mutual Funds of India (AMFI) can now sell mutual funds.

Professional Management and Customer Service

When you buy a mutual fund, you hand over the task of investing to a qualified and probably more knowledgeable fund manager who is paid for finding the right opportunities for you.

As for customer service standards, mutual funds in India have been constantly raising the bar they have set for themselves. The service standards are comparable to what you will get anywhere else in the world.

For example, most fund distributors will come to your residence or office and explain the product features and also collect your cheque.

If you want to sell your fund, you can do so pretty quickly too, mostly within one or two working days. There is no paperwork to fear. For example, in the case of Standard Chartered Mutual Fund's (SCMF) income funds, the money will be credited directly into your bank account if the account is held with select banks.

In case of systematic investment plans too, you can do so with auto debits. Every month, on a day you choose, your bank account will be debited with a particular sum and specified mutual fund units available for that sum will be bought. No more hassles of issuing post-dated cheques.

Despite all these facilities, you may have myriad doubts and queries. Not to worry. Mutual funds offer toll-free lines at over 200 locations. For example, on the SCMF call-free telephone line, you can get to know valuations, order for account statements and even redeem your investments without any personal identification number.

Conclusion

Mutual funds tower over other investment choices. If past collection figures are a testimony, investors seem to have realized this. Most public offerings of mutual funds have collected in excess of Rs 500 crore (Rs 5 billion) from thousands of investors.

To sum up, mutual funds offer you a large menu of choices. Pick a fund based on how much risk you can digest and how long you can wait for returns.

Do your homework and shun false expectations -- you will not get fabulous returns overnight from equity funds or even income funds. Both require time to fetch decent returns, and you need to be patient. And remember, your job does not end after buying a fund. Keep a watch on what the fund manager is doing with your monies. Check if your investments are in line with your goals. Good luck!

The author is Rajiv Anand, Head - Investments, Standard Chartered Mutual Fund.

ALSO SEE:

• India's best mutual funds, ranked!
• When to sell your mutual fund
• How to plan for a monthly income
• 7 good reasons to invest in SIPs

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