4 Reasons Why You Should Invest in Mutual Funds

As investors, we want to invest in a medium which gives us maximum returns and at the same time, is relatively safe

Mutual fund is basically a bunch of stock and government securities which a professional advisor (AMC) l invests on your behalf.

A lot of investors prefer mutual funds as opposed to other investment options, simply because they have varied categories and are ideal for long term appreciation.

The mutual fund industry has been growing exponentially and one of the main reasons for it is the sheer simplicity through which one can invest in mutual funds. Today, I don’t have to fill up sheets of paperwork to start investing.

I can invest in some of the best mutual funds from reputed AMCs like SBI and L&T MF, by a click of a button.

But what attracts me to this investing medium?

As a mutual fund investor, I can give you several reasons why you should choose this mode over others.

But in this article, I will consider the 4 main reasons.  Let’s get started.

1. Diversification

If you are a seasoned mutual fund investor, you have heard about diversification ample number of times.

Through mutual funds, you can diversify your portfolio to match your own needs. You can build a portfolio which fulfills your criteria of wealth appreciation, by investing in equity funds and achieve stability as well, by investing in debt funds.

In fact, one of the main reasons why investors prefer mutual funds is because through diversifying your investments, you are reducing the risk factor.

For example, if the market declines next month, your loss will be balanced, as you will have an amount invested in debt funds, which are low risk funds.

2. Tax Benefits

None of us like to pay taxes and mutual funds can turn out to be beneficial when it comes to getting tax exemptions.

Under Section 80 ‘C’ of the Income Tax Act, you are exempted from tax up to a limit of 150,000, if you invest in a certain type of mutual fund scheme, known as ELSS or Equity Linked Saving Scheme.

This is primarily done, to encourage investors to put their money in equities. These funds like any other equity oriented fund invest in stocks of various companies, which means they provide decent returns to investors. ELSS funds have a lock-in period of 3 years.

There are schemes by reputed AMCs like L&T Mutual Fund known as L&T Tax Advantage Fund, which has provided exceptional returns in past years.

3. Relatively Safer, Compared to Direct Stocks

You must remember that no investment can give you guaranteed positive returns, but mutual funds are relatively safer when compared to direct stocks.

One of the main reasons being that mutual fund securities are handled by professionals and also because the exposure to equity is minimized as the money is invested in a culmination of stocks, which makes investing in mutual funds less volatile.

Also, in direct stocks one must be aware of what is happening the financial market. The investor will have to review his/her investment on a regular basis and make sure it is going in the right track.

However, in mutual funds, the investor needs to do no such thing! The fund manager and his/her team make the decisions after thorough analysis.

Mutual fund is a medium where your money works for you without much hassle from your side.

Recommended: 5 Benefits of Long Term Investments For Financially Sound Future

4. Managed By Professionals

Every mutual fund is managed by a highly skilled fund manager who has a substantial amount of experience and knowledge about the mutual fund industry.

When you invest direct stocks or other securities, you have to do your own research, in order to figure out the right kind of stock.

However, in mutual funds, the fund manager and his/her team choose the stock they want to invest in, which makes the process much more simpler for people who are not adept with the industry.

Conclusion

These are not the only advantages of mutual funds and there are a plethora of other reasons why today’s investor is getting attracted to this investment medium.

Due to rapid digitization and growth of online platforms, investing in mutual funds is becoming convenient and the investor base is rising progressively. The common Indian is moving over fixed deposits and gold and diversifying to more dynamic options like mutual funds for long term capital appreciation.

If you haven’t started investing in mutual funds yet, then what is stopping you?

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