Everyone is talking about investments, returns, SIPs, mutual funds. You might have seen some commercials saying “mutual fund Sahi hai”. What is all this big humdrum about mutual funds? What is the best way to invest in mutual funds? Is it so important to think about how can you manage your investments? When it comes to investment decisions, it is better to leave it to the experts. A good financial advisor can guide you through the process of investment. So when everyone is talking about investing in mutual funds, here are the reasons why they're doing so:
There are two main asset class mutual funds invest in- debt and equity. Funds can be pure debt, or just equity or can be balanced or hybrid. The highpoint of investing in mutual funds is that you can choose from a variety of shares or fixed income instruments. This way, if a few of them are not performing well, others can compensate. This is how mutual funds ensure diversification.
There are over 2000 active schemes to choose from. You can invest in short term investment plans for say 3 months. This way, you can customize your investment according to your risk capacity, investment parameters, and personal financial goals. Debt funds are least risky, balanced or hybrid funds are moderately risky while equity funds involve maximum risks. But as they say, the reward is directly proportional to risk, equity involves maximum returns.
When you invest in open-ended mutual funds, you can buy and sell your units at any time. Closed-end funds can also be liquid. Even though they are for a fixed duration, once they are listed on the stock exchange, they can be bought and sold. So when you buy open-end or closed-end funds, there is a high level of liquidity.
Investing in mutual funds guarantees flexibility. You can either make a lump sum investment or put small amounts over a period of time (SIP: systematic investment plan). Investing through SIP is particularly easy because you can invest in lesser amounts. You can also acquire mutual fund units at a lower cost.
Another highlight of investing in mutual funds is that you can begin a SIP with a minimal amount like 500 a month. You don't have to wait for a suitable amount of cash to be saved for investment. This way, you can make the perfect use of the cash available and make maximum returns.
When you buy equity funds directly, you have to pay costs like brokerage and securities transaction tax. A larger number of transactions mean higher costs. When investors do bulk transactions in mutual funds, they might get lower brokerage rates benefiting the investors.
Saving on income tax is also one of the great perks of investing in mutual funds. When you invest in an ELSS fund you can reduce your tax up to a considerable amount by law.
After reading these points, you might start resonating with the idea that investing in mutual funds can be a beneficial decision that you can make. Your goals that require financial assistance, can be fulfilled by the one decision you make right now!