Before we delve on the reasons concerning why you should invest in mutual funds, let us quickly recall what a mutual fund is. It is simply a professionally managed investment tool wherein an AMC (asset management company) or a fund house pools money of several investors and invest in various securities to meet the cumulative objective of investors . Mutual funds can invest in stocks, bonds, equities, cash, money market instruments, and/or numerous other securities. This article will provide you with top reasons why you should consider investing in mutual funds
5 Reasons to invest in mutual funds
Following are some of the top reasons why investing in mutual funds makes sense:
1. Professional management
As stated, mutual funds are professionally managed investment vehicles by fund managers who oversee a basket of securities basis the fund’s investment objectives and financial goals. These fund managers are highly qualified with a good understanding of the markets. They track the markets daily, try to identify the winning stocks and invest in them to help investors generate wealth.
You must be familiar with the adage saying – ‘Don’t pull all your eggs in one basket’. This holds accurate for mutual fund investments too. This is the basic idea behind diversification. It basically means to spread your investment portfolio across different types of investments and asset classes. This helps to alleviate an investor’s loss by offsetting the losses against highly performing stocks.
3. Reduce your tax outgo
If you wish to enjoy tax benefits while investing in mutual funds, Equity-Linked Savings Scheme, commonly known as ELSS funds are the right bet for your portfolio. These tax saving mutual funds offer investors with the dual benefits of tax-saving and wealth creation. According to the Section 80C of the IT Act, 1961, an individual can claim a tax deduction of up to Rs. 1.5 lac by investing in ELSS tax saving mutual funds. You can save up to Rs 46,800 by investing in ELSS funds.
4. Disciplined investing
It’s always a good idea to invest for a secure and safe future. When you start a Systematic Investment Plan(SIP), you are committed to invest a particular amount in a mutual fund scheme regularly for a set period of time. This instils the much-required financial discipline among you to take a step forward towards a secure future.
5. Well regulated
All types of mutual funds are regulated by the mutual funds regulator of India – Securities and Exchange Board of India (SEBI). This essentially means that all mutual funds are mandated to follow several directives as laid down by the SEBI. This, in turn, helps to safeguard the interests of the investors. Moreover, all mutual funds are mandated by the SEBI to disclose their complete list of holdings each quarter.
Mutual funds have the potential to earn significant returns to beat the inflation. However, as mutual fund investments are subject to market risk, it is recommended to choose funds bearing your financial goals, investment horizon, and risk profile in mind. Happy investing!