Today the market is flooded with innumerable types of investments. Selecting the ideal one which matches your requirement is a very difficult task due to lack of time and resources. Through this article, we have tried to discuss various reasons why one should invest through mutual funds rather than jumping into any particular asset class directly where you don’t have much idea.
Here are 5 reasons why you should invest in mutual funds-
1. Managed By Professionals
Mutual funds in India are managed by a professionally trained team of fund managers who are experienced and skilled in making the investment decision based on the investor’s needs, preferences and goals. Common people do not have the required expertise and also the time needed to analyze the different mutual fund schemes. This is where the fund managers step into the rescue of the common man who manage their investment in a structured and well thought out manner.
2. Portfolio Diversification
This is one of the most important advantages of investing in mutual funds. Diversification basically means spreading your investment across various asset classes. An investor can diversify his/her portfolio through mutual funds by investing in both equity and fixed income securities.
Within the equity spectrum, there can be different sectors like FMCG, IT, banking, retail etc. and within each sector; there can be different types of companies and further dividing the companies there can be a small cap, mid cap and large cap.
One can also invest in fixed income securities to manage risk in a better way. This way an investor can spread his risk across different asset classes and maximize his return.
3. Ease of investment & monitoring
Now, investing in mutual funds is as easy as making Maggi. The investor can start by investing just Rs. 500 or any small amount per month in systematic investment plan (SIP) and then gradually increasing it as is suitable for the investor. An investor doesn’t even need to invest the SIP amount manually. He/she can direct the bank and the amount will be debited automatically from the account of the investor.
The investor can even monitor his/her portfolio through many online platforms available that allow the facility of investing in mutual funds. The internet nowadays has evolved so much that it has made so much easier for the common man to analyze, evaluate and decide as to which mutual fund scheme to invest in and, monitor and review it from time to time.
Also read: – Capital gains taxes on Mutual funds
4. Liquidity & Tax Benefits
Another advantage of investing in the mutual fund is high liquidity. Almost all the mutual fund schemes today are open-ended schemes. The open-ended schemes are those schemes which are available for subscription continuously, i.e. investors can buy and sell units of the mutual fund scheme at prices based on the net asset value (NAV) of the scheme disclosed on a daily basis. Due to this reason, i.e. because the investors can buy and sell units on a daily basis, investors of the open-ended scheme have the advantage of entering and exiting as per their comfort over the investors of close-ended schemes.
Mutual funds not only provide liquidity to the investors but also various tax benefits. An Equity-linked Saving Scheme (ELSS) is one such type of open-ended scheme where the investors enjoy tax exemptions u/s 80C of Chapter VI-A of the Income Tax Act, 1961. Taxes on mutual fund vary depending on the type of mutual fund and its holding period.
5. Comparatively higher return on investment
Mutual funds have proved to be a safe haven investment option for those investors who do not want to put in much effort and time to track the equity or cash market on a regular basis. From time to time, mutual funds have generated returns that (if not outperformed the equity market returns) have definitely beaten the other fixed income investment options like fixed deposit returns.
So looking at the perks mutual funds gives you, don’t you think this is the right time to invest? If yes, then go ahead with a counseling session, get a detailed understanding of the subject and plan your investment wisely to reap the future benefits.