Nowadays, Investors are spoilt for choice when it comes to choosing the best and suitable investment opportunity. The term “investment” denotes Money Market Securities, Bank Deposits, Bonds, Shares, etc. Further, Mutual Funds, due to to their well-governed structure and higher growth potential, offer a great avenue for investors to build and invest wealth. This blog will talk about the benefits of investing in Mutual Funds.
Concept of Mutual Funds?
A Mutual Fund is an investment method that pools money from the investors and invests in a wide range of Bonds, Stocks, and other products. The people who manage Mutual Funds are known as “Fund Managers”. A Fund Manager is an expert in managing investment and money.
Further, one of the significant benefits of investing in Mutual Funds is that it assists an investor in wealth creation. He/she just needs to invest their money in a mutual fund of their choice. After that, the Fund Manager will proceed with the process further on behalf of the investor.
Example: Investing in Bonds and Stocks is more like driving one own’s car. That means he/she has full control over the vehicle and can drive it in whichever way they want. However, they also need to pay for maintenance, fuel, repairs, etc. Therefore, an investor needs to be vigilant about every activity taking place.
Whereas, investing in mutual funds is more like booking a shared cab from the favorite cab renting center. In this case, the rider (investors) need not worry about the route as the driver (fund manager) will take care of everything.
Hence, it is always advisable to invest in mutual funds instead of stocks and bonds, as this investment option provides both comfort and lesser stress.
Why to Invest in Mutual Funds?
The reasons to Invest in Mutual Funds are as follows:
- Easy to Enter: Nowadays, most mutual funds allow their investors to start a SIP (Systematic Investment Plan) for as low as Rs 1000 a month. That means one can start investing in mutual funds by saving less than Rs 35 a day. Although, Rs 35 seems a small amount, but if invested right, the same will assist in wealth creation. Moreover, there is no maximum limit to how much one can invest in mutual funds, nor there is a limit to how much one could benefit from mutual funds. That means one can start with as much as he/she wants!
- Higher Returns: As already explained in the example mentioned above, a mutual fund tends to offer better returns than any other investment alternative. Example: Rs 10000 pm invested in mutual funds raises to nearly Rs 1 crore in the next 20 years! That means the investor will get Rs 50 lakhs more than what he had got from a Recurring Deposit.
- Personalization: In Mutual Funds, an individual can choose the amount, duration, and type of investment, which is not possible in other options available. In simple terms, with mutual funds, one can get a customized investment plan.
Ways to Start Investing in Mutual Funds?
A little knowledge of anything can turn out to be dangerous. Therefore, we suggest that every prospective investor mustconsult an experienced person before investing in Mutual Funds.
Further, Mutual Funds is a broad concept and includes a variety of sub-parts in it. That means one cannot find a suitable investment option based on his/her needs by using Google. That’s why one must consult an experienced financial advisor before investing his/her money in the funds.
Benefits of Mutual Funds Investing
The benefits of Mutual Funds investing can be summarised as:
- Smart Investment Option: When a person invests in a mutual fund, the associated risk is comparatively low as most of the schemes diffuse the investment in several assets and sectors for minimizing the risk. Thus, if any of the areas face a loss, then the profits from the remaining sectors will set off the amount that he/she has lost. This risk mitigation factor makes mutual fund investments a better investment alternative than other investments.
- Low-cost Investment: Since Mutual Funds acquire money from several investors, the asset management services offered by the company comes at a relatively low cost because the amount is equally divided among all the investors.
- Well-regulated Funds: The SEBI (Securities Exchange Board of India) acts as the regulatory authority for the Mutual fund investments. Further, SEBI has laid down various rules and regulations for the fund providers operating in the country. That means all the investments are made as per the guidelines issued by SEBI. This, in return, ensures that the mutual funds are both safe and well-regulated.
- Professionally Managed: In India, the mutual funds are professionally managed by experts’ fund managers who have prior experience in managing mutual funds. That means, even the beginners who do not have any knowledge regarding the market can also invest their funds with the assistance of expert managers.
- Multiple Investment Options: While investing in a mutual fund, an investor gets an assortment of alternatives. He/she can choose funds as per their objective and amount of returns they want to derive. Further, Mutual Funds also give an option of regular income flow throughout the period in the form of a dividend pay-out facility.
- Installments or Lumpsum Investment: A Mutual fund investment provides investment options for those people also who do not have a large sum of money to invest at one go
- Diversification of Risk: One of the significant benefits of mutual fund investing is risk diversification. That means an investor can decide the percentage of risk he/she is willing to take.
- Growth-oriented Investment: Nowadays, most of the Mutual Funds tend to invest in the growth-oriented investment market, wherein the investors get a chance to benefit from the rising and growing economy.
- Easy Liquidity Options: A Mutual Fund provides investor flexibility in choosing the liquidity option. In this, an investor has the power to decide between the tax-saving funds and regular funds both differ in terms of liquidity.
- Easy Purchase and Redemption: Another significant benefit of a mutual fund is that its units can easily be purchased, and redeemed at the relevant NAV (Net Asset Value)on all the business working days. Further, as there is no restriction on the redemption of units, the investors have easy access to their invested amount.
- Easy to Track Funds: As we all know that regularly reviewing the mutual fund investment portfolios is a back-breaking task. As the units are purchased and redeemed by the investors on a regular basis. That is why the fund companies give clear statements regarding all the investments. Thus, making it easy and straightforward for the investors to keep track of their funds.
- Tax Saving Advantages: A Mutual Fund investment offers tax-saving benefits to investors. Example: if an individual invests his/her money in mutual funds, such as ELSS (Equity-Linked Savings Schemes), then he/she will be eligible to get a tax deduction under Section 80C of the Income Tax Act, 1961.
We at Growth Begins aim to spread awareness among the People about their Personal Finance and Investment Opportunity, which will help them in their financial journey. In this blog, we have tried our best to provide you a complete knowledge about what are the benefits of investing in Mutual Fund. Hope you like this post.