Looking to save money for a rainy day and not sure about where to keep it? Though investment paths are multifarious, but more adaptable are the reasons for which a person is planning to save. Some are looking to keep aside their money when a big corpus is created in the future, while others want to yield highest amount of returns.
The age old habit of saving in bank accounts has lost many takers, so investing in mutual funds has proved to be a tempting option for those investors who are looking to generate profit and don’t want extra money. Mutual funds are analogous to the practice of pooling money. Companies that are dealing with mutual funds not only collect money from investors but also look for grounds such as debt instruments, stocks of the companies and other assets that can generate highest return. Money that is invested by an individual investor and pooled together by fund managers is used to carry out infrastructural projects, for infrastructural developments or bringing in some technological improvisation, which can be of great use for the inhabitants of the country. From a saving point of view, investors get higher returns on the money they invest in mutual funds.
Investments made in mutual funds grow because of the power of averaging and compounding of return-cost ratio. By giving your money to the fund manager to invest, you give him the responsibility to manage your corpus. Thus, he re-invests the returns of your money at a constant rate every year, as well as the other returns generated in the form of dividends, interest, etc. also keep appending. Therefore, there is great amount of increase in the return rate registered at the end of the investment period. This is the main principle of how a mutual funds yields highest returns.
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