National Pension System (NPS) is a retirement benefit Scheme introduced by the Government of India to facilitate a regular income post retirement to all the subscribers. PFRDA (Pension Fund Regulatory and Development Authority) is the governing body for NPS.
Money Savings is one of the important task to build wealth and to have a secure financial future. Saving money gives you power to meet all uncertainties of life and it will help you with an opportunity to enjoy a quality life. Saving a small sum of money in a systematic manner can help you steer out of many hurdles and obstacles in life. It can support you in your needy time and ensure that your family has something to fall back on in case of an unfortunate event. There are many reasons to save and several ways to save with ease.
Here are some of the important aspects of savings that you should know.
Savings is important for everyone, regardless of their Salary , Income , Earnings, Spending , Expenses , Age and life stage. Some reasons why you need to start saving is listed here.
Savings offers peace of mind:
Knowing that you have a certain amount accumulated for times of your need, gives you peace of mind. You can lead a stress-free life with the knowledge that you will not have to struggle if things take an unexpected route.
Savings gives you a better future:
Your savings can be the answer to a number of your goals. You can buy a house, accumulate funds for your retirement, or purchase a vehicle. You can secure your future, indulge in the best of things that life has to offer and live a very fulfiling life.
Savings provides for your children’s education:
With a considerable amount of savings, you can fuel your children’s dreams and pay for the best schools and colleges across the world.
We can plan your short-term goals:
Savings are not just aimed at the long term. You can also benefit from savings in the short term. A lot of people save for a few months and then travel.
Savings gives your family security in case of an unfortunate event:
By saving in a disciplined manner, you can make sure that your family is well provided for. In unfortunate times, your savings can act as a cushion for your loved ones and help them overcome any financial difficulty.
A mutual fund is a pool of money managed by a professional Fund Manager.
It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities. And the income / gains generated from this collective investment is distributed proportionately amongst the investors after deducting applicable expenses and levies, by calculating a scheme’s “Net Asset Value” or NAV. Simply put, the money pooled in by a large number of investors is what makes up a Mutual Fund.
Here’s a simple way to understand the concept of a Mutual Fund Unit. Let’s say that there is a box of 12 chocolates costing ₹40. Four friends decide to buy the same, but they have only ₹10 each and the shopkeeper only sells by the box. So the friends then decide to pool in ₹10 each and buy the box of 12 chocolates. Now based on their contribution, they each receive 3 chocolates or 3 units, if equated with Mutual Funds. And how do you calculate the cost of one unit? Simply divide the total amount with the total number of chocolates: 40/12 = 3.33. So if you were to multiply the number of units (3) with the cost per unit (3.33), you get the initial investment of ₹10.
This results in each friend being a unit holder in the box of chocolates that is collectively owned by all of them, with each person being a part owner of the box.
Next, let us understand what is “Net Asset Value” or NAV. Just like an equity share has a traded price, a mutual fund unit has Net Asset Value per Unit. The NAV is the combined market value of the shares, bonds and securities held by a fund on any particular day (as reduced by permitted expenses and charges). NAV per Unit represents the market value of all the Units in a mutual fund scheme on a given day, net of all expenses and liabilities plus income accrued, divided by the outstanding number of Units in the scheme.
Mutual funds are ideal for investors who either lack large sums for investment, or for those who neither have the inclination nor the time to research the market, yet want to grow their wealth. The money collected in mutual funds is invested by professional fund managers in line with the scheme’s stated objective. In return, the fund house charges a small fee which is deducted from the investment. The fees charged by mutual funds are regulated and are subject to certain limits specified by the Securities and Exchange Board of India (SEBI).
India has one of the highest savings rate globally. This penchant for wealth creation makes it necessary for Indian investors to look beyond the traditionally favoured bank FDs and gold towards mutual funds. However, lack of awareness has made mutual funds a less preferred investment avenue.
Mutual funds offer multiple product choices for investment across the financial spectrum. As investment goals vary – post-retirement expenses, money for children’s education or marriage, house purchase, etc. – the products required to achieve these goals vary too. The Indian mutual fund industry offers a plethora of schemes and caters to all types of investor needs.
Mutual funds offer an excellent avenue for retail investors to participate and benefit from the uptrends in capital markets. While investing in mutual funds can be beneficial, selecting the right fund can be challenging. Hence, investors should do proper due diligence of the fund and take into consideration the risk-return trade-off and time horizon or consult a professional investment adviser. Further, in order to reap maximum benefit from mutual fund investments, it is important for investors to diversify across different categories of funds such as equity, debt and gold.
While investors of all categories can invest in securities market on their own, a mutual fund is a better choice for the only reason that all benefits come in a package.
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