If you are searching for reasons to start investing in Mutual Funds, you are at the right place. There are many reasons to invest in Mutual Funds but here we will be focusing on the top 11 reasons that you should know about investing in Mutual Funds :
Table of Contents
1. Best way to Diversify your Portfolio
The most important reason why one should start investing in Mutual Funds is Diversification. When you invest in a Mutual Fund say, Equity Fund, you get exposure to shares of different companies in different proportions. So, why invest directly in stocks when you are getting the taste of those shares under one roof only?
You as an investor should try to diversify your portfolio as much as you can so that a bad performance in any one of your investments does not deteriorate your overall portfolio. Mutual Funds provide you with a diversified portfolio.
2. Mutual Funds offers various options to invest in
In Mutual Funds, there are different types of Funds like Equity Funds, Debt Funds, Gilt Funds, etc. where one can invest according to their Financial Goals, Risk profile, and Time Horizon.
For example, if you are a conservative investor ( does not prefer to take the risk), you can invest in Debt/Gilt Funds.
3. Low Capital investment required: Start with as low as Rs 500
There might be so many people who would have just started earning and would want to take the advantage of saving and investing. Mutual Funds is the right place for you as in Mutual Fund you do not have to invest a large sum of money to start investing.
You can start investing in Mutual Funds through a Systematic Investment Plan (SIP) with as low as Rs. 500, which makes it accessible to all investors.
4. Mutual Funds are professionally managed by Fund Manger
Investing in any Financial instruments requires proper research and understanding of the markets. Now, some people would want to start investing but do not have much time to track their portfolios daily or the required knowledge about the markets.
Well, you don’t have to worry about all that when investing in Mutual Funds as it has a Fund Manager who manages the portfolio of the Scheme and who has the right qualification, expertise, and, experience to select the right instruments that would give good returns.
5. Mutual Funds helps to compounding your money
Compounding is the process where the profits or the interests that you earn are reinvested with the principal amount. When you invest through SIP in Mutual Funds, the return that you will earn gets reinvested. The longer your investment will be the more times your money would grow i.e. the more will be the effect of Compounding.
6. Mutual Funds offer Transparency
Suppose you decide to invest in Equity Funds. Now as a rational investor you might want to know about the stocks that the Fund you selected is investing in i.e. their portfolio? or any information about the Fund and the Fund manager?
So, you don’t need to worry as you would get complete information about the Fund, the stocks that they are investing in, etc. in the prospectus of the Fund ( a document that contains all the details regarding the Fund). You can get the prospectus on that particular Mutual Fund’s website.
Thus, Mutual Funds are transparent and all the information that an investor wants to know about the Fund will be available in the prospectus or will be provided by them.
7. Helps you in becoming a Disciplined Investor
Investing in Mutual Funds through SIP makes you achieve discipline in your investments. As in SIP, the amount will automatically be deducted from your respective Bank account on the due date. So, you don’t have to manually go and invest the amount making it easy and stress-free activity. Mutual Fund is the best place for investors who find it hard to manage their finances and those who do not want to keep a track of the market.
8. Mutual Funds offer easy Liquidity
An investor can enter and exit the Mutual Fund at any time they want. Mutual Funds provide good liquidity i.e. the investment/asset can be easily converted into cash within a very short time. For instance, if you sell the units of your Mutual Fund today then you will get the respective amount by as soon as tomorrow. Thus you as an investor get the benefit of liquidity in Mutual Funds.
9. Mutual Funds are a safe
Mutual Funds are safe and secure as they are regulated by the Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI). The Mutual Fund scheme gets a license after a thorough background check. Therefore the chances that the Mutual Fund company would run away with your money or enter into any kind of fraud are negligible. Thus making it a safer investment.
10. Mutual Funds helps in saving Taxes
Equity Linked Saving Scheme is a scheme where individuals, as well as HUF, are allowed a deduction of 1.5 Lakhs under section 80C of the Indian Tax Act 1961. So, to save taxes one might take the benefit by investing in this Mutual Fund Scheme.
11. Helps in Building Wealth
The main motive of investing is to build wealth right? Mutual Funds can help you build a sufficient amount of wealth in the long term if done after proper understanding and according to your financial goals. Mutual Fund is all about time, the longer you stay invested the more would be your wealth because of Compounding.
As we have seen, that there are many benefits of investing in Mutual Funds. But what matters is, are the reasons enough for you to realize that what you were missing? If yes then start investing in Mutual Funds today itself and enjoy all the benefits listed above. With rising inflation, we must understand the importance of investments and get returns that beat the inflation rate.
The four main advantages of investing in Mutual Funds are Diversification, benefit of Compounding, the funds are professionally managed and helps to bring discipline in Financial life.
Mutual Funds are a good investment if done with proper understanding and research. The fund you are investing in should match your goals and risk profile.
It is diversification. In a mutual fund, you can invest in shares of different companies under one roof rather than investing individually, which helps you in reducing the amount of cost that you would incur if you invest directly in stocks.