Investors Dilemma:Which is the best investment option? | Mutual Funds

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INTRODUCTION

Every investment option has its own strength and weaknesses. Some avenues yield superior returns but with correspondingly high risk. The others provide safety but at the expense of liquidity and growth while some do offer safety and liquidity but at low returns.

For Instance,

1. Investment in Equity yields high returns but the risk is huge.

2. Investment in Public Provident Fund assures high safety but this is at the expense of the liquidity and growth.

3. Bank Deposits do offer safety and liquidity but at the expense of returns.

4. Insurance could become the serious investment vehicle once the insurance market is opened to the private players. In today's scenario, the opportunity cost in the terms of return is too high for insurance to be compared on even terms with the other options. Its liquidity is also extremely low, though safety is considered high at present for the government owned LIC as the only insurer.

ANSWER TO INVESTORS DILEMMA

The question for the investor is "Which is the best investment Option".

The only answer to it is "Mutual Funds."

Mutual Funds seek to combine the advantages of investing in various alternatives while dispensing with the shortcomings of the other investment avenues. The trend in the market shows that the people invest in the mutual fund because they consider it as the instrument, which will yield income and entail capital growth. The people also find that there are many mutual funds and new fund offers available in the market with high, medium and low risk tolerance mutual funds along with the flexibility in its terms and conditions. Moreover, if we analyze the different investment options, then we can say that direct equity investment offers the capital growth potential, but at high risk and without the benefit of the diversification and professional management offered by the mutual funds. Gold and real estate are attractive in the inflated economies. Other options are largely for the risk averse, income oriented investor. Mutual Funds provide the widest choice to the investors as the dividends distributed by the mutual fund are exempt from tax in the hands of the investors as well as the investment also qualify for the tax deduction under Section 80 C.

About the Author

Prof. Rajesh Ganatra (MCOM, ICSI, FAS)

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