Mutual funds have long been a popular investment choice for individuals looking to grow their wealth, and for good reason. They offer numerous advantages that make them a compelling option for both novice and experienced investors. In this article, we’ll explore the key reasons why you should invest in mutual funds as your financial strategy.
- Professional Management: One of the most significant benefits of a mutual fund is the portfolio management provided by qualified fund managers. Professional money managers who work full-time and have the necessary resources, experience, and knowledge to acquire, sell, and oversee investments are in charge of managing mutual funds. To achieve the goals of the plan, a fund manager keeps a close eye on investments and rebalances the portfolio as necessary.
- Risk Diversification — Purchasing shares in a mutual fund is a simple method to spread out the risk of your assets by diversifying them among a variety of securities and different types of assets, including gold, debt, and equities. This works well in situations where there are market challenges in a particular mutual fund scheme. One asset class’s risk can be compensated by the others when there is diversity. Other investments in the portfolio might not be affected and might even gain value even when one of them has a decline in value.
- Affordability and Convenience: Mutual funds provide investors of all sorts with the possibility to invest in funds because most of them have lower minimum initial investment requirements. The types of assets in which mutual funds primarily invest are debt and equity. Certain funds allocate all of their investments to debt funds, some to equity funds entirely, and the remainder to balanced or hybrid funds. Mutual funds also provide you the choice of investing the full amount at once or a predetermined amount regularly. The term “Lumpsum” refers to the first option, while “Systematic Investment Plan,” or SIP, refers to the second option that provides convenience for everybody.
- Liquidity — Compared to other investment options such as post office schemes, infrastructure bonds, life insurance, etc., mutual funds offer options that are substantially more liquid. Open-ended funds can also referred to as liquid fund as investors in open-ended funds have the advantage of being able to redeem their units at any time during business hours to cover their financial demands. Closed-ended mutual fund schemes, however, only allow unit redemptions upon maturity.
- Low cost: Investing in mutual funds is incredibly economical. You are required to pay costs such as brokerage and the Securities Transaction Tax (STT) when purchasing direct equities. The greater the number of transactions you process, the more costly it becomes. and since mutual funds execute trades in large quantities, investors can benefit from having to pay less transaction fees.
- Well-Regulated: Under the Securities and Exchange Board of India (SEBI) (Mutual Funds) Regulations, 1996, the capital markets regulator oversees mutual funds. SEBI has established strict guidelines that maintain investor safety, openness, a suitable framework for mitigating risk, and fair valuation criteria. This guarantees more security while investing.
- Tax Benefits: Under section 80C of the Income Tax Act of 1961, an investment in an ELSS is eligible for a deduction of up to ₹1,50,000 from taxable income. Longer-term investments in mutual funds are more tax-efficient.
In conclusion, investing in mutual funds offers a range of compelling reasons to consider them as part of your investment strategy. Its features and potential tax benefits make it an attractive option for investors seeking to build and grow their wealth. However, it’s essential to conduct thorough research, understand the specific mutual funds you are considering, and consult with a financial advisor if needed. At your convenience, there are many online platforms like 5paisa offering services related to investing and financial guidance to make informed investment decisions that align with your financial goals and risk tolerance.