Today, it is impossible to make assetswithout making the proper investments to create significant wealth. This guide will break down as to why investing in mutual funds can be beneficial in ten different ways.
1. Diversification of Investment Portfolio:
Stock market investments through mutual funds are safer as they minimize risk exposure. With mutual funds, there isn’t any need for buying individual securities for diversifying investments; therefore exposure to the volatility of stock market crash is minimized.
2. Management through Professional Help:
Many investors are worried of foraying into the fields of mutual fund, which involvesfollowing the timing of the stock market’s fluctuations as well as realigning investment portfolio. But not to worry. Professional and dedicated fund managers are here to help you monitor the performance of fund, review investments and realign asset allocation.
3. Many Options to Choose From:
Varying kinds of mutual funds exist to cater to the unique needs and financial goals of all kinds of customers. There are stock funds, bond funds, sector funds, debt funds, equity funds, balanced funds and more. Such variety also allows for an investment portfolio that is well-diversified. Regardless of preference towards active or passive management of funds, there is something for everyone.
4. Systematic Investment and Withdrawals:
Mutual Funds are good for those who are new to investments, as they promote discipline and habit formation through many user-friendly options. With a SIP or Systematic Investment Plan, a fixed sum may be invested in Mutual Funds on monthly basis during specific tenure.
5. Automatic Reinvestment:
Dividend payouts are offered to investors based on performance as well as gains. Mutual Fund investments also have the option to have such dividends reinvested over time, which, through compound interest, accumulates into a significant corpus. If there is no requirement for regular payout, reinvestment is worth it because there is no extra fee involved.
6. Transparency:No hidden charges exist in MF investments. All of the relevant information regarding holdings, assets and performances remain available for all investors. This provides transparency in operation, resulting in the encouragement of investors towards making informed decisions.
7. Liquidity and Shorter Lock-in Periods:
Many mutual funds let investors withdraw from their fund investment within as little as a year, with a small amount of exit load to pay. Some schemes, like ELSS or Equity Linked Savings Schemes have three years worth of mandatory lock-in period. But this is much smaller than avenues like FD or PPF when compared to.
8. Tax Saving Benefits with ELSS Investment:
ELSS is the categories of Mutual Funds which provide tax benefits to the investors. This category allows for tax deductions up to the limit of Rs. 1, 50,000 under Section 80C of Indian Income Tax Act. ELSS investment allows you the dual benefits of tax deductions and capital appreciation.
9. Safe Investment Avenue:
Even if any Mutual Fund house faces bankruptcy, the concerned shareholders will get an equivalent pay-out in comparison to their shareholding percentage in that Mutual Fund.
In case of consistent or unexpected underperformance, the Board of Directors may employ new advisors to manage Mutual Fund investment.
- Low Investment Thresholds:
Contrary to popular belief, mutual funds do not require lump-sum investments right at the very beginning. Many companies allow their investors to start investing with minimal Rs. 1,000/-. As for SIP, many mutual fund houses allow a low investment rate of Rs. 500/- each month.