Why mutual funds? This is one question that many people have been asking, particularly in the current scenario where rising inflation levels have necessitated investment avenues that are superior to conventional and secure options. When it comes to the safety aspect, queries regarding why is it good to invest in mutual funds can be easily answered. Mutual funds are as safe as investments made in banks or NBFCs. This is because mutual fund houses and plans/schemes are regulated and monitored by leading organizations like the Securities and Exchange Board of India (SEBI) and AMFI (The Association of Mutual Funds in India). AMFI, for instance, promotes healthy and ethical ways of doing business for the mutual fund industry while enhancing standards in all respects for protecting interests of unit holders of mutual funds.
AMFI is the association of mutual funds that possess SEBI registration and asset management companies (AMCs) with registration as well. All 42 SEBI registered AMCs are also members of AMFI. So these are bodies which regulate the sector and make it safer for you to invest from the ethical standpoint. No one will run away with your money. Of course, for those who are just starting their investment journey or even those who have hitherto stuck to conventional and low-return investment channels, mutual funds offer a great way to compound and build future wealth while ticking off major financial goals. There are multiple advantages of mutual funds that you should be aware of.
The average returns historically generated by mutual funds have often surpassed inflation comfortably and are considerably higher than conventional avenues like PPF, FDs and the like, while offering higher liquidity and tax-efficiency as well. This is the reason why investors wish to invest in mutual funds in spite of the market risks involved. By spreading out the risks through portfolio diversification and investing with smaller amounts, i.e. through SIPs, this aspect can also be managed to a large extent. Here’s taking a look at the 7 key reasons why you should start investing in mutual funds right away.
Should I invest in mutual funds? Top reasons to invest
Investments in mutual funds like the Axis small cap fund and other successfully performing funds can be done easily without any hassles. Here are the 7 best reasons why you should invest now without further ado.
- Diversification– Whenever you purchase any mutual fund, you will buy into a collection of all the investments made by the fund in question. Diversification indicates that this fund has spread your investment corpus throughout various companies and multiple asset types. The money will be invested in a mixture of various market products with low or high risk levels. For instance, large cap funds diversify the portfolio by picking up equity shares of various companies with large market capitalization and which are established for several years now. Hybrid funds diversify through investments in bonds and stocks.
- Lower Initial Entry– You can start your investment journey with as low as Rs. 500 every month or even lower. You can choose the SIP (systematic investment plan) route instead of the lump-sum investment for lowering risks and starting small simultaneously.
- Professionally Managed- Mutual funds are managed professionally by analysts, market experts and mutual fund managers who have a common goal of analyzing, researching and studying market trends and mutual fund holdings to work out the best strategies for their clients. The family advisory will help you find and select the best funds to meet your financial goals while coming up with the right strategies in response to market conditions..
- Low-Cost– Purchasing bonds and stocks may cost more owing to the demat account or transaction charges. Since mutual funds manage high amounts on behalf of innumerable individual investors, they are able to tap into this for lowering costs of transactions greatly.
- Deploying money via SIPs- SIPs help you invest in mutual funds for lower amounts and post registration of your bank details with the online platform, you can set up your SIP with any comfortable amount. You can automatically get this amount debited on your chosen day of each month for a mutual fund that you prefer.
- Complete Transparency- Investments made by mutual funds are available publicly each month and you can view your fund performance, investment details and all other information anytime you wish through your fund manager.
- Liquidity Benefits- Since you spread your investment across various bonds and stocks, you can easily sell mutual fund units as per your convenience in case you need money swiftly. The money will reflect in your account within just two working days. There are Instant Redemption Funds which speed up this procedure too, sending back your money within 60 seconds into your account after selling mutual fund units.
From renowned tax saver funds like Mirae asset tax saver fund to funds that come with multifarious benefits, you will find a large variety available in the market. There is a suitable fund for every type of investor and this is another advantage. You will find suitable funds that sync with your risk profile and tolerance, financial position, investment duration/horizon, strategy and personal objectives. Debt funds have the lowest risk levels while hybrid funds have moderate risk levels. Equity funds have the highest risks although they may reap greater rewards over longer periods of time. Choose wisely with help from your investment advisor.