I want to invest in mutual funds through SIPs. When we invest via SIPs, should it be for the short-, medium- or long-term? What should be the minimum investable amount? What will happen if the AMC I invest in goes bankrupt?
Sachin
To answer your first question, the kind of mutual fund you choose to invest in depends broadly on your risk-return profile. For example, if you can stomach volatility, you should invest in a mid- and small-cap fund for the long-term. Such funds have higher volatility, but also present higher earnings capacity. If you want a much smoother ride with less volatility, then you should opt for large-cap funds. At the same time, a balanced fund would give you greater stability. Hence, one should select funds as per their risk tolerance and investment period.
Coming to your second question, a mutual fund company is formulated and regulated in such a way that the investors’ money doesn’t stay with them. Your money goes to a trust and is kept separately in a custodian account for each individual mutual fund. The fund company’s job is to only manage your money. A fund company is run in a transparent manner, which has prevented any sort of forgery from taking place so far. And there hasn’t been a single instance where a fund company has run away with investors’ money. Hence, the regulatory framework ensures that your money stays safe.
This article was originally published on April 09, 2012.
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