The cost of living increases each year, even when inflation rates are regulated. Whatever spare funds you have now might not be enough to support your lifestyle 15 or 20 years in the future.
To meet these rising costs, you need to build up a large corpus of funds for all your future needs. If you are a financial expert or have good knowledge and experience in market investments, you can directly pick stocks and bonds to create a good portfolio of investments.
That’s all well and good. But what if you don’t?
Why Should You Invest in Mutual Funds?
Mutual Fund schemes are an ideal vehicle for the average investor to create good investments for the future. They might pose high risks, but more and more people still drift towards these schemes, because of the allure of high returns.
Benefits of Mutual Funds
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Mutual funds operate under strict SEBI guidelines
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Mutual Funds are launched and managed by Asset Management Companies. Each scheme launched by the AMC is managed by a professional fund manager
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Mutual Funds take money from various investors and build up a huge pool of funds. This gives them the opportunity to invest in a number of shares and other securities, across a range of industries
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In each MF scheme, the fund manager picks investments across different sectors. They can also mix investments in shares and debt instruments to suit the scheme’s objectives. This kind of diversification lessens risks
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Through Mutual Funds, even small investors can get the services of professional investment managers and get to share in a diversified portfolio.
Other Advantages
Transparency in Goals and Operation
When you are given an offer document for an MF scheme, it clearly states the goals of the particular scheme and also states the type of investments that will constitute the fund portfolio, to achieve those goals.
Besides this, you can gauge how the fund is performing through the regular revisions in the Net Asset Value (NAV). You also get regular reports on the fund’s investment strategies
Liquidity of Investments
Mutual Funds make it easy for investors to redeem their investments quickly for emergency cash needs. Open-ended funds allow investors to sell units at any time, with the ability to provide access to the redeemed amount within 24 hours or less.
Rupee-Cost Averaging
Create regular investments in mutual funds or invest through a Systematic Investment Plan (SIP) to take advantage of rupee-cost averaging. It works like this – when the NAV of the mutual fund is high, you buy less units for your investment amount. When the NAV is low, you buy more units for the same amount, thus averaging out the cost of investment over a period of time.
Tax-Saving Benefits of Mutual Fund Investments
Equity Linked Savings Schemes (ELSS) are a special type of mutual funds with a short lock-in period of three years. On these investments, the principal amount can be claimed for tax exemption under Section 80C of the IT Act.
A Good Choice of Schemes
Mutual Fund schemes all have different goals and strategies. You can pick the fund that suits your needs, and also create a mixed bag of investments. If you want growth, you can get the benefits of equity mutual fund schemes, with reduced risk. You can invest in income funds, balanced funds, tax-saving schemes, mutual funds liquid funds, Monthly Income Plans, Sector Funds etc.
Mutual funds allow even novice investors to share in the benefits of a large diversified portfolio, managed by professional investors. You can choose the schemes that fit your goals.
Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.
