13 Reasons why you need to Invest in Mutual Funds

Investment has become a vital aspect of an individual’s life. With growing time and increased value of money, investment is becoming a priority.

Now, the question arises where to invest? How to Invest? Returns? Risk involved? Tax benefits? Transparency? 

Answer to all these investment questions is Mutual funds. Mutual Funds are the easiest and transparent mode of investing for all being it a beginner or the ones who need more diversification for investments.

What are Mutual Funds?

Mutual Fund is a pool of money accumulated from various investors to invest in securities such as stock, bonds, money market instruments, and various other assets. These are considered to be the least risky as the risk is diversified among various investments that make up your portfolio. These funds are operated by professional money managers who allocate those funds to produce capital gains or income for the investors.

 Investing in mutual funds

Investment in mutual funds is a brain twister with many different opinions, perspectives and delusion. A retail investor often tends to get puzzled in this financial maze as he is not fully aware of all aspects of the market. Mutual Fund sellers often due to sales pressure don’t disclose all facts about the fund and its growth prospects, so it’s essential to be self-aware.

Benefits:

1.     Professional Management – Mutual Funds are professionally managed by a qualified fund manager and the investor doesn’t have to do lots of research for asset allocation. A fund manager takes care of the investment and its allocation of the fund and decides whether to invest in debt or equity according to the market. This makes things easy on the investor part as he is ensured that his portfolio is in the right hand.

2.     Diversification – Diversification is the key to proper investment. Mutual fund share their risk based on market performance; it helps the funds to give profitable returns even when the market is down. The fund manager invests in all asset class to spread the risk and in turn, helps the investor to be on the profitable side.

3.     Low cost / Economical – Investing in mutual funds doesn’t require a huge amount of money to be spent either on purchasing or on selling. There are few mutual funds available in the market with zero loads. An investor can choose the fund scheme according to his goal, risk appetite and budget.

4.     Tax Efficient – Mutual fund has tax benefits; an investor can save up to Rs.1.5 lakh in a tax saving mutual fund scheme mentioned under 80C tax deductions. ELSS is an example of that. 

5.     SIP or Lump-sum – Systematic Investment Plan (SIP) helps, an investor can plan his mutual fund according to his convenience, budget and risk appetite. A SIP can be started from a minimum ₹500, which makes it feasible for people from all walks of life.

6.     Financial Goal – Mutual fund can be done according to the investor’s financial goal. There are different mutual fund scheme available in the market, which can help the investor to decide which scheme is suited for his financial goal and investment can be done accordingly.

7.     Convenience – Mutual fund is a very convenient and hassle-free way of investing as no research from investor needs to be done since all the fund is professionally managed. All the information is available on the websites and investments can be done online; not much paperwork is required.

8.     Liquidity/ Flexibility – Buying and selling of mutual funds scheme are very easy. You can sell your units at any point (when the market is high) the only thing that needs to be kept as a precaution is the exit load or pre-exit penalty. Close-ended funds too can be liquid. Even though they’re for a fixed duration, close-ended funds are listed on an exchange after the New Fund Offer (NFO) closes. Once these funds are listed on a stock exchange, they are freely bought and sold. High liquidly helps the investor to take out money at any time.

9.     High Returns - Mutual funds are expected to provide higher returns to the investors as compared to direct investment because of professional management, economies of scale, reduced risk, etc.

10. Safe and Transparent - Mutual funds are a safe and transparent mode of investment. Investment is made under an Asset Management Company, which is strictly under the view of government bodies like SEBI and AMFI. All the details can be verified from SEBI. They also have an impartial grievance redressal platform that works in the interest of investors.

11. Manage Inflation – Inflation is a major concern and investing in a mutual fund helps to curb some parts of it. In recent years ELSS, gilt funds and dynamic bonds have delivered good returns.  

12. Rupee Cost Averaging: The SIP allows the investor to invest a fixed sum each month, irrespective of the price of per unit of the mutual funds. Therefore, when the unit price falls at the time of economic crisis, the investor can buy more units and relish high return after financial stability.

13. Compounding benefits - Benefit of compounding helps an investor to grow its investment, and this is high in case of mutual funds since the money generated in the form of capital gain is reinvested.