Most people believe that savings alone can help them secure their future. However, a recent study by Standard Chartered shows that most savers in the world’s top ten growing economies are set to miss their retirement goals by around 50%. This highlights that investing your money is more important as it helps you grow your money with minimum effort. It also provides inflation-beating returns that can help you achieve your financial goals and secure your future. With the availability of online funds, investing has become even easier for beginners.
What are Mutual Funds?
Mutual funds are investment funds that professional fund managers handle. These companies pool money from multiple investors to buy several different securities including bonds, equity, money market instruments, etc. Each investor holds a share of the fund and receives returns from the collective gains made by the various securities. You can choose to invest in a mutual fund via a bank or a brokerage firm or select an online fund through an app or a digital platform.
Benefits of Investing in a Mutual Fund
- Diverse Portfolio
Mutual funds allow you to diversify your investment portfolio and reduce the risk of losing money. Since a mutual fund invests in several securities, the impact of a bad investment is often offset by other options. Small investors often find it difficult to diversify their portfolios as they have limited funds. But a mutual fund allows you to do so for as little as ₹500 per month. This low investment limit will enable people from all walks of life to start investing.
- Professional Management
Investing can often seem scary, especially to first-time investors, as it requires a deep understanding of recent market trends. However, investing through a mutual fund allows you to leave the specific investment decisions to well-versed professionals with the market dynamics. You can also choose to invest in an online fund. Many portals that offer online funds use AI technology, which can analyze and select the funds that best suit your needs and financial goals.
- Easy to Buy and Sell
Mutual funds are relatively easy to buy especially when you are buying an online fund. You don’t need to fill in lengthy paperwork and register on an online portal just by completing a few steps. You can also sell your share of a mutual fund at any time if you need cash in hand. However, it should be noted that some mutual funds do have a long lock-in period when you cannot sell them.
- Easy to Access and Manage
Unlike direct investments in the stock market, mutual funds are easy to manage as they do not require constant research and monitoring. A mutual fund makes investments even more manageable as you can check on them at any time and from anywhere. Online portals also usually have an agent on hand to answer your queries and doubts in real-time.
- Tax-Saving Investments
Investing in tax-saving mutual funds like the Equity Linked Savings Scheme (ELSS) can help you get deductions of up to a maximum of ₹1.5 lakh per financial year, under Section 80C of the IT. Investing in Gold ETFs is also more tax-efficient than directly buying gold. Tax-saving mutual funds usually have a lower lock-in period than other tax-saving investment opportunities such as a fixed deposit. They also provide higher returns than other tax-saving investment vehicles.
- Relatively Safe and Transparent Investment Option
Mutual fund companies have to regularly disclose the assets they are investing in, ensuring that investors know how their money is being used. Due to Securities and Exchange Board of India (SEBI) guidelines, all mutual fund schemes also have a color code that lets investors know the risk associated with investing in a specific fund. SEBI also dictates the commission and fees structure that portfolio managers can charge, making the investing process more transparent.
Investing can seem risky to many, which is why people often spend a lot of time considering where they should invest their money and how much they should invest. However, experts claim that around 40%of people have experienced a personal financial loss because of such procrastination. Mutual funds can be a great investment opportunity for such people, as they are managed by professionals and don’t require much research. To begin investing, you can also choose an online fund from wealth management portals, which often charge no extra fees or commission. SEBI guidelines also regulate mutual fund companies to protect investors and ensure that their funds are safe. Therefore, investing in mutual funds is generally safe, low-risk, and hassle-free. It can help you generate passive income and make sure that your future is financially secure.