The Advantages of Mutual Funds

If you haven’t lived under the rocks for many years you’d be aware of Mutual Funds. While you may not know the benefits of investments in mutual funds but you would have come across ad campaigns asking you to keep your money in Mutual Funds. They do have many advantages and here we shall look at some of the reasons of why you should start investing in mutual funds –

• Investment in equity – You’d be aware of the fact that equity markets offer you high rate of return. But they also tend to be extremely volatile, and if you lack technical knowledge to choose the right stocks you are likely to suffer losses. Mutual funds are the safest and easiest ways to leverage the equity market without going into the nitty-gritty of stocks trading.
• Diversification of investments –Investors need to diversify their capital allocation in the equity market. In pure equity mutual funds or those where equity is the major component your investments is spread across different stocks that cuts down your risks as compared to trading in a single stock. Depending on your choice you can opt for sectoral mutual funds or funds that invest in companies by their size.
• Beyond equity – Mutual fund investment isn’t just about investing in equity funds. You have safer options such as liquid funds, debt funds or those that invest your capital in the money market or income instruments. By choosing different types of funds you will be able to meet your short and long terms investment goals.
• Professional management – This is perhaps the biggest benefit of investing in mutual funds. You don’t need to keep track of the market as is the case with investing in the equity market and make daily buying and selling decisions. A professional fund manager would do this for you. All that you need to do is invest your capital when the markets are conducive and divest part of your investments when you can book substantial profit.
• Slow and steady investment – SIP or systematic investment plans have become the most preferred route of investment into mutual funds. Here you invest into various funds in small installments thus spreading your risks. What this does is reduces the entry barrier in investing and lets your grow your wealth exponentially over time. To share an example a monthly investment of ₹500 per month for 30 years in equity mutual funds or ₹1.8 lakhs in total can turn into ₹33.2 lakhs considering 15% annual return which is standard average for such long term investments.

To sum up mutual funds are one of the best instruments of investments. In India popularity of mutual funds has grown in the recent years as people see higher returns compared on traditional options of investments. By choosing funds based on your investment capital, age and investment goals you will be able to generate healthy returns both in the short and long term.

Summary – In this write-up we look at some of the benefits of mutual fund investments and why you need to invest in these.