Santa Clause Broadens his Horizons

This year Santa Clause has done his homework well. He has decided to include adults in the list of gift recipients along with children. Having taken notice of the fact that things like recession, inflation, price rise, job cuts take up our time and energy during most of the year, he has vowed to drive away worry, despair and stress from the lives of people.
Santa Clause has chosen this Christmas to change the mood and replace pessimism with waves of unadulterated optimism. Dressed in his red cloak, sporting a snow-white beard,  this grand old man is set to deliver a financial bonanza to his numerous adult fans.
While people have various expectations, Santa Clause has carefully researched and drawn up plans based on his assessment of an individual’s financial need. The mundane lives of his followers can be brightened if people can live well in the present and also plan a reasonable future.
The sled is laden with the bounties which include Mutual Fund certificates among other things. It has been a yearlong study for Santa Clause in the cold confines of his arctic home. He is determined to share the benefits of such a study with the world so that everyone can make their best choice.
Santa Clause’s broad-minded views are amply reflected in his choice of gifts – Mutual Funds. This investment option benefits people, young or old to tap several asset classes at one go.


Santa’s thoughts about the utilities of Mutual Funds
The justifications towards the old man’s choice can be understood through the following analysis:

I.               Mutual Funds as a bridge to several Asset Classes:
Mutual Fund Schemes act as a bridge to reach a definite asset class – equity, stocks, shares, debt, bonds, fixed income instruments and gold. In a large number of countries around the world, it is possible to invest in real estate, commodities, and several other asset classes through the mutual fund route. No wonder Santa chose this option for his faithful followers.

II.              Mutual Funds as a vehicle to invest in specific investment products:
Investors who are interested in debt funds can choose to take exposure to government securities, treasury bills, call money etc. through the mutual fund route. This might not have been possible for a small investor otherwise. In a few countries (and India too is contemplating its introduction), it is possible to invest in real estate through the mutual fund route. An investor wanting to invest Rs.50 crores can do so by investing in five different properties with stakes up to Rs. 10 lakhs per project. It is only through the use of mutual fund that such a wish can become a reality.

III.            Mutual Funds offer greater liquidity and flexibility:
In several asset classes, mutual funds offer far better liquidity than direct investments. The partial redemption option offered by mutual funds help in selling off a part of the investment required to fund current needs without having to sell the entire holding which might have been the case in direct investment. Further with the abolition of the entry and exit loads for long term investments, this is perhaps the cheapest means to invest across many asset classes.


IV.            Mutual Funds offer a host of benefits:
Mutual funds help in protecting the investments against inflation. An exposure to multiple asset classes and products has the effect of insulating the exposure from the vagaries of the market. For people investing in equity funds the returns are usually higher than the combined effect of inflation and taxes which might have to be borne. Moreover, an investment made on a long term basis (over a year) is eligible for exemption from the capital gains tax.
The retail investor is also spoilt for choice when he can choose to invest in funds from over thousands of funds managed by 40 odd asset management companies (AMC). When an investor chooses to go with equities, he can opt for a growth fund or a value fund or even a fund which combines both. For those who prefer dividends, can select income funds. The opportunities are limitless.
It is obvious that mutual funds offer a convenient route for the small retail investor who do not have the financial muscle to make a big investment and yet would like to approach the world of investment in a balanced manner. Small investments in the form of SIPs’ can help build a sound corpus and thereby ensure good returns over time.

V.              Mutual Funds as tools of Asset Allocation:
Some mutual funds are inherent tools of asset allocation. Allocation funds, for example, include balanced funds and monthly income plans simultaneously. They invest in equity and fixed income instruments in different proportions. Indian investors have a fascination for gold and Fund companies smartly tapped into this long-standing fascination by introducing funds that can simultaneously invest in equity, fixed income, and gold (via the ETF route). It is the fund manager who decides what proportion of the allocation is to be made in each asset class while remaining within the broad limits mentioned in the Scheme Information Document. In effect, such funds are a one-stop-shop for asset allocation.


Cheers for Santa’s choice
At the end, if all is well, everyone is happy. The mutual fund route for enabling investment in an array of asset classes for different kinds of investors is the motive behind Santa’s noble efforts. It is also important to remember that mutual funds are not an asset class by themselves (an impression which at times gets incorrectly projected) but a vehicle for making an investment in asset classes.
It is hoped that Santa Clause’s efforts will bear fruit and more investors will feel encouraged to invest through this route.   




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