When you read about investment, you cannot overturn the topic without the term “Mutual Funds”. The massive world of mutual funds offers several tailor-made plans for every one of us to meet our financial goals. In addition to financing our long-term and short-term goals, Mutual funds have other perks. This blog explains in detail some of the numerous boons of investing in a Mutual Fund.
Table of Contents
Benefits of Mutual Fund investment
1. Managed by certified professionals:
Are you investing in the correct stocks and securities? Does this investment have the potential to meet your goals? What to expect in the market in times of pandemic? Here comes the role of a professional. One of the huge benefits of investing in a Mutual Fund is that it is managed by highly qualified and certified experts.
A budding investor will not have the time and expertise to manage mutual funds based on market trends. Due to all the constraints, every mutual fund is managed and the portfolio is adjusted on a periodical basis by professional money managers. Your hard-earned investments are also analyzed by a group of analysts regularly. This bright-eyed management of your investments is the biggest advantage of Mutual funds.
2. Diversification:
Consider having a budget and investing it fully in a single stock. What happens to your investment at times of dips? The thumb rule of investment is to not put all your eggs in one basket. This can be fulfilled by mutual funds investments.
The diverse choice of stocks and companies across different sectors and industries is the major pros of mutual funds. This factor can reduce the risk of market dips to a certain extent. Even if one of the stocks in your portfolio decreases in value, this might not impact the other stocks you hold. Hence, there is always a chance to reduce the risk in mutual funds even in turbulent times. Moreover, mutual funds have the added benefit of securities.
The below chart paints a clear picture about the importance of diversification.
3. Liquidity:
What is the point of investing regularly if you can’t redeem it during emergencies? Unlike other financial instruments, mutual funds come with no lock-in period. Except for the Equity Linked Savings Schemes (ELSS), most open-ended mutual funds including debt funds or hybrid or equity funds in India offer instant liquidity.
You have the luxury of liquidating your funds in times of need and even during major market changes. You can withdraw your investments from mutual funds at any point in time with the help of your broker or AMC company. You can also sell a part of your holdings in your mutual funds and hold the other units for the future. The process of withdrawal is straightforward. This flexibility and speedy supply of cash usually in a day or two in mutual fund investments make it the most sought-after model of investment in recent times.
4. Tax benefit:
Are you looking for wealth creation with tax-saving benefits? Then Mutual funds are here for your rescue. The Equity Linked Savings Schemes (ELSS), has the dual benefit of saving tax and creating wealth. ELSS is a special kind of Mutual fund eligible for tax deduction. These mutual funds are eligible for up to 1.5 lakhs of tax deduction in Section 80C for every individual tax return under the Income Tax Act 1961.
Unlike other traditional tax-saving instruments, ELSS has a great potential to spike your wealth. Additionally, these mutual funds offer a Systematic Investment Plan(SIP), “providing lifelong tax saving and wealth generation”. Investing as SIPs can regulate and furnish a disciplined investing habit in investors that are suitable for salaried employees and first-time investors. Hence, ELSS is one of the must-have investments in every budding and experienced investor for long-term benefit. This tax saving feature of mutual funds is a cherry on the cake.
5. A plan for all:
Do you feel your savings in your Bank account are not sufficient for big investments? Mutual funds are very cost-effective. They provide plans for every jack and jill irrespective of their income. Many mutual fund schemes offer a SIP option where you can start your investment journey with Rs.1000 every month.
As referred to by Albert Einstein as the eighth wonder of the world, the “Power of compounding” can do miracles to your investment over time. Starting off with a few hundred every month can accumulate a considerable amount of wealth. There are different types of mutual funds catering to different people with varied needs and goals. Mutual funds also have several investment plans for first-time investors.
Compared to any other asset, mutual funds have provided better returns in the last 20 years.
Bottom line:
The above-mentioned benefits of Mutual fund investments can not only offer returns but can also provide a sense of security. It can be exhausting to choose from the numerous investment options available in the market. Investing in a budget can also be intimidating. You might also get confused about where to begin your investment journey. Start somewhere, anywhere and the rest just follows.
