If you have been receiving paychecks lately, it is now the right time that you start investing, if you haven’t already. To ensure financial security for both, your present and future, you must plan, implement and invest wisely. And when it comes to exploring the best investment options in India, what can be a better mode of investment than mutual funds. In this article, we look at – 7 Reasons why Mutual Funds are the best investment option.
As you start investing in mutual funds, you would realize that you would not only end up with a significant pool of savings on your side, but also add on to your sources of income. No matter, how long your wish-list is or whatever your plans are for future – the saving and investment that you make today is going to help you achieve all you can visualize.
Here are 7 reasons why investments in mutual funds are the best option –
1. Wealth creation ability
Mutual funds allow you to build a significant corpus of wealth in the long run. Investors profit from the high capital gains on invested capital as well as the dividend income. The capital gains for a mutual fund are reflected through its NAV (Net Asset Value) which can easily tracked. Dividend is the amount that a fund house pays as a share in the company’s profit to its investors. You can also choose to reinvest the dividends received, through the growth option available in mutual funds, to earn high returns over the years.
2.Variety of investment choice
Mutual funds offer you a choice in the type of funds to invest depending upon individual goals. These choices can be easily understood and opted for based on your own risk profile. For instance, you can choose which type of fund to invest in – equity, debt or hybrid; or large cap, mid cap or small cap. Each fund intends to serve a different investment objective. Moreover, you may also decide how you wish to pool in your funds, in one go or in predetermined installments. For instance, you may choose to invest through SIP (Systematic Investment Plan) which allows you to invest a fixed amount of money at pre-specified time intervals, or you may invest through lump-sum which means that you will have to pay the entire amount in one go.
3. Disciplined approach
Mutual funds houses or asset management companies provide you with complete scheme related documents and guidelines before investing. Various modes of investment such as Systematic Investment Plans (SIPs) help investors maintain a disciplined approach to their savings and investments, thereby achieving their long-term investment objectives. On top of this, fund houses ensure that the investors are true to their details by the mandatory process of getting their KYC done, thereby ensuring a fair and regulated investment process.
You can simply create an automatic deduction mechanism of SIPs from your salary or other income sources. This ensures that you invest before you spend money and thus sets in a disciplined way to build wealth.
4. Investment expertise
Investments in mutual funds do not ask for investors to actively trade their stocks on their own, unlike trading in equities. These funds are managed by professional fund managers who have years of experience in their jobs and choosing which stocks to invest in. Fund managers follow investment strategies in order to create a portfolio and maintain high returns on your investments. The fund managers have sufficient expertise in picking the right stocks in order to ultimately get the best risk-adjusted returns.
You should check out the details of the fund manager as well as the number of funds being managed by that fund manager. If you see consistency of good returns over time, then you can simply select to make an SIP for that mutual fund.
5. Risk diversification
Investors can invest in as many investment securities as they wish to. This provides them with flexibility in investments and also brings in diversification. Having diversified investments balances the involvement of risk in an investor’s portfolio and increases the chances of gains. Also, your mutual fund portfolio can have a number of funds of varied categories which could balance out the risk of loss. However, it is advised not to have more than 5-6 funds in your portfolio.
Alternatively, if you plan to invest into equities and other financial assets on your own, you struggle with keeping a track of latest happenings, news & re-organizing the asset allocation. By investing in mutual funds, you can focus on creating the income sources & off-load other work to a professional mutual fund management team.
6. Easy accessibility
Investing in mutual funds is an option that can be accessed from the comfort of your home. A physical presence in the mutual fund house isn’t necessary. Mutual funds are offered at various platforms which aggregate schemes from different providers. One can also log on to AMC’s website to research and invest. All you need to do is have a bank account and enter details that will help you become KYC compliant, which would be a one-time process.
Different mutual fund categories have been made to suit varied financial needs of investors. One may choose to invest in a mutual fund depending upon his/her financial objective, investment horizon, risk appetite, etc. For instance, if you wish to invest for a long term and cannot afford risks with your investment, you may invest in equity funds; while if you are sure that you would need your funds in the recent future and are okay with moderate risk, you may invest in debt funds. Mutual funds are also considered more liquid than other investment avenues like PPF, NPS, Fixed Deposits or even Real Estate.
Moreover, mutual funds can also help you save taxes with the lowest lock-in among-st all other tax saving schemes. If you wish to stay in the old regime of saving taxes, ELSS could be a viable choice.
Sign up for our financial investments newsletter here –
If you liked reading this, you may like reading through a different way of starting with investments. To know more about the how India invests & investment options like equity, mutual funds, debt – check our post on “How to start investing” and “A Wealth Snapshot of India“
In addition to the above, you may also want to check about our post on Money & Emotions for investments. It delves deeper into the mindset you need to adopt for building wealth through financial investments.
Stay tuned for further updates.
To read about mutual fund investments, you may check our post on Mutual Funds in India.
Also feel free to write us at [email protected]