5 Reasons why you should Invest in Mutual Funds

5 Reasons why you should Invest in Mutual Funds

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Those who have come to the realization that investing in fixed income instruments is futile are now actively seeking other investment opportunities. Also, to achieve life’s different financial goals it is essential that investors do proper financial planning instead of banking on just one scheme for all their goals. Spreading your investment across asset classes not only mitigates the overall investment risk but gives the investor an opportunity to diversify and favor from the investment opportunities these different asset classes offer. One way to spread your investment portfolio across sectors, industries, and market capitalization is through market linked schemes like mutual funds.

Let us focus on the importance of mutual funds and take a look at some of the reasons why one should invest in them.

Mutual funds are professionally managed

Mutual funds are an investment vehicle that pools financial resources from retail investors sharing a common investment objective and invest the sum accumulated across various asset classes and money market instruments. Mutual funds are managed by a team of analysts, market researchers, and fund managers who are actively involved in ensuring that the portfolio of the scheme is able to favor the existing market conditions. Since mutual funds are under expert management, even those with very little knowledge about mutual funds may consider investing in these funds.

Mutual funds offer diversification

Investors who want to get a taste of how the equity markets function can invest in mutual fund schemes like equity funds. Equity funds invest in diversified portfolio equity related instruments and stocks. Through a single investment in equity funds, the investor gets exposure to a wide range of stocks. If they shad to directly invest in the equity market, they’ll have to shed thousands of rupees to buy a single stock. Thus, for first time investors investing in mutual funds makes sense because if even of stock from the portfolio underperforms, other performing stocks might allow the portfolio to drive in the alpha.

Tax benefit with ELSS

By investing in Equity Linked Savings Scheme (ELSS), investors can bring down their tax liability by Rs. 1.5 lacs every fiscal year. ELSS is a tax saver fund that has a tax exemption feature as per Section 80C of the Indian Income Tax Act, 1961. By investing in this tax saving scheme, investors will not only save tax but might even be able to create wealth in the long run. Another benefit of ELSS is that it has the shortest lock in period of three years among other tax saving instruments.

A wide range of schemes on offer

A mutual fund is a very broad spectrum under which there are various types of schemes catering to the investment needs of almost every type of investor. Those with an aggressive mindset can invest in equity schemes like large cap funds, mid cap funds, small cap funds, flexi cap funds, or multi cap funds. Those with a conservative approach can consider debt funds like liquid funds, gild funds, overnight funds, etc. Those who wish to have a balanced portfolio can consider a hybrid. Investors who wish to explore investment opportunities outside India can invest in international funds. Then there are passive funds like ETFs which can be traded at the live market price just like stocks.

Mutual funds allow small investments

Thanks to the SIP feature, investors can invest in mutual funds with an amount as small as Rs 500 per month. They need not have a large surplus to invest in mutual funds. Investors can even use the SIP calculator to calculate the total returns they can earn through SIP investing.

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