Why Mutual Fund

Mutual funds are for everyone who wishes to create wealth through systematic Investments. Investors can start with as minimum as Rs. 1000 to invest in a good mutual fund scheme as per your financial obligations and objectives. The funds selected can vary based on the tenure for achieving goals, the funds available to invest, the returns expected and the risk appetite of the investor. Mutual fund Investments allows corpus generation along with offering other benefits of diversification and more. Depending on the risk appetite, there are several mutual fund schemes available in the market for you to choose from. In case you need to know why mutual funds, you are just at the right place. Given below some of the reasons why investing in a mutual fund is the right decision you can take today.
1. Portfolio diversification
Mutual fund investments are made in two main assets namely debt funds and equity funds. Furthermore, mutual funds also allow investments in balanced or hybrid funds. The primary advantage of considering mutual fund as your investment option is that you get complete exposure to a different variety of shares or fixed-income vehicles.
In simple terms, you want to invest Rs. 1000 directly in stocks. Such investments would get you a share or two. However, if you invest through mutual funds, you can secure a basket of several stocks within the same amount, lowering the risk and increasing the chance of profit.
In case some of your securities fail to perform, other securities can compensate for the loss. This way mutual funds confirm diversification in your portfolio. It is best suited for all investors who do not have the required time for research and the required risk appetite for investing in volatile stock markets.
2. Schemes suited to your needs
It is estimated that there are over 2,000 mutual fund schemes that are actively performing in the market, making your hunt for the suitable scheme easy. In other terms, there is a suitable mutual fund scheme for everyone irrespective of the investment amount, investment tenure, investment horizon, financial goals and risk appetite.
Debt funds at the least risky, whereas balanced or hybrid funds, hold moderate risk, while equity funds are known to hold the highest risk among the three. However, the rule of the stock market says the higher risk you take the maximum is the returns.
The above categories have subcategories from which you can choose such as large-cap equity fund, mid-cap equity fund and small-cap equity fund. Large-cap equity funds are known to be less volatile and offer stable returns whereas small-cap equity funds have the highest volatility and the returns depend on the performance of the securities in the market.
Considering debt funds, you can choose to invest in corporate papers that offer maximum returns than gilt funds, however, corporate papers carry a higher risk than the latter.
3. High liquidity
Mutual Funds allows you to buy and sell your securities or units as per your comfort. Your redeemable or purchase value is dependent on the NAV or your fund’s Net Asset Value for that particular day. Closed-ended funds or open-ended funds the level of liquidity is always high. Some schemes may have a lock-in period and you should consider learning about search terms and conditions before you invest.
4. Systematic on lump sum investments
You can choose between lump-sum investment or systematic investment plans (SIP) while investing through mutual funds. While lump-sum investment will require the availability of considerable capital, you can consider investing in SIP with a minimum investment amount as low as Rs. 1000. Besides, SIP offers the benefit of rupee cost averaging that maximizes your returns.
5. Tax benefit
Mutual funds also allow the investor to save income tax. If you invest in an Equity-Equity-Linked Savings Scheme or ELSS funds you can enjoy the tax benefit of up to Rs. 1.5 Lakh under Section 80C of the Income Tax Act-1961.
Mutual Funds are cost-efficient and allow you to start investing with a minimum amount of Rs. 1000. Besides purchasing equity directly adds external costs like brokerage and Security Transaction Tax. The more your transaction is the higher the external expenses. Mutual funds enjoy the benefit of overlay investors that allows them to do bulk transactions, which they are able to enjoy the advantages of economies of scale. Debt funds deal with larger quantities and hence can negotiate higher interest rates from the issuers.
All of the above reasons makes mutual funds the best investment option for those desiring to generate a considerable corpus for their financial future.