When considering investment opportunities, the first challenge that almost every investor faces is a plenty of options. From stocks, bonds, shares, money market securities, to the right combination of two or more of these. However, every option presents its own set of challenges and benefits.
So why should investors consider mutual funds over others to achieve their investment goals? Let’s find out:
Going by the saying, ‘Do not put all your eggs in one basket’, mutual funds help mitigate risks to a large extent by spreading the investments over various avenues.
The beauty of a mutual fund is that you can buy a mutual fund and obtain instant access to hundreds of individual stocks or bonds. Otherwise, in order to diversify your portfolio, you might have to buy individual securities, which in turn maximises the volatility.
You may not have the skills and knowledge to manage your own investments or want to spend the time. Mutual funds allow you to pool your money with other investors and leave the specific investment decisions to a portfolio manager. Portfolio managers, backed by an entire team dedicated to market research, decide where to invest the money and when to buy and sell investments.
Mutual Funds help investors generate better inflation-adjusted returns, without spending a lot of time and energy on it. While most people consider letting their savings ‘grow’ in a bank, they don’t consider that inflation may be biting away its value.
Suppose you have ₹100 as savings in your bank today. These can buy about 10 bottles of water. Your bank offers 5% interest per annum, so by next year, you will have ₹105 in your bank.
However, inflation that year rose by 10%. Therefore, one bottle of water costs ₹11. By the end of the year, with ₹105, you will not be able to afford 10 bottles of water anymore.
Mutual Funds provide an ideal investment option to place your savings for a long-term inflation-adjusted growth so that the purchasing power of your hard-earned money does not drop down over the years.
The regulatory authority that oversees mutual funds is SEBI (Securities and Exchange Board of India), which has laid down strict guidelines that mutual fund providers need to follow. This ensures that there is no unfair treatment of investors and tries to assure that the investment works in favor of both the investor and the mutual fund provider. It also establishes safety and transparency of investments.
Wide variety to choose from:
A wide variety of Mutual Funds are available in the market. There are high-risk funds such as- equity fund, medium risk fund such as- balanced fund, sector-specific fund and low-risk fund such as- debt fund, money market funds etc. Investors can choose from these funds according to their need for return and risk appetite. In other words, they can either chose a fund where earnings may come over a short period or one where they come over a longer period to ensure that the returns can be encashed just in time for a planned expense.
Mutual funds are an ideal investment option when you are looking for convenience and timesaving opportunity. The whole process is offered online by many players in the industry. Starting a SIP or making an investment can be done in a matter of few clicks. Even tracking the performance of your investments can be done easily online.
You can set up a bank mandate for monthly investments and set your SIPs on auto-pilot mode so that you are even saved the hassle of manually investing every month. The SIP amount is automatically debited every month from your account.
Probably the biggest advantage for any investor is the low cost of investment that mutual funds offer, as compared to investing directly in capital markets. One can start with as low as ₹500 and get the advantage of long-term equity investment. In addition, the cost of asset management is also low because money is acquired from a whole bunch of investors.
The liquidity offered by mutual funds is much better than some other investment classes, such as real estate. Investors have the advantage of getting their money back promptly, in case of open-ended schemes based on the Net Asset Value (NAV) at that time. In case your investment is close-ended, it can be traded on the stock exchange, as offered by some schemes.
Mutual funds offer the option to invest in them and claim income tax benefits under section 80C of the IT Act. This means that the money invested in mutual funds is exempt from income tax and helps bring the taxable income down.
In Short, Mutual funds allow investors to pool their money for a diversified selection of securities, managed by a professional fund manager. Whether the objective is financial gains or convenience, mutual funds offer many benefits to its investors.