There are several advantages of investing in mutual funds since you can simply start investing for wealth accumulation with an amount as little as Rs. 500 every month. Yes, one of the key advantages of mutual funds is the sheer convenience and flexibility, making them suitable for just about everyone. Investing an amount regularly over a sustained time period can go a long way towards helping you create sizable wealth for the future via the power of compounding.
What are mutual funds?
Mutual funds are vehicles for investments where the money is pooled together by a group of investors for earning solid returns over a sustained duration. The money that is collected from investors is managed by a professional manager who is an industry professional. This amount is deployed across various market securities including stocks, bonds, gold, and other types of assets. Losses/gains are equally shared by investors proportionately, on the basis of their contributions to the fund.
Key mutual fund types
Among the core features of mutual funds is that they come in various types. There are debt funds that make investments in specific assets such as corporate bonds and government securities. These funds aim at ensuring comparatively reasonable returns for investors and have lower risk levels. Then there are equity funds that make investments in stocks and seek to ensure capital appreciation for investors. Returns on these funds are mostly tied to stock movements in the market and hence the risk levels are considerably higher for them.
Hybrid funds, on the other hand, invest in a mixture of fixed income and equity-based securities/assets. The proportion of equity may range between 01-00% on average.
Major mutual fund advantages
Investing in mutual funds in India with the help of a reputed organization like Groww is always a good idea. Here are the basic advantages that you need to be aware of:
- You get professional management for your investment funds by paying only a small charge/fee. Your manager will be tracking market movements regularly while buying/selling stocks and analyzing market trends.
- You can seamlessly diversify investments with your mutual fund investments. You can spread your risk by investing in multiple asset classes across the portfolio.
- Mutual funds usually help in meeting financial objectives through steady returns over a sizable period of time.
- You have high liquidity levels since it is easier to sell/purchase mutual funds in comparison to many other investment channels such as NPS, PPF, and the like.
- You can conveniently invest small amounts every month, depending upon your financial situation. You can invest on a quarterly basis as well while getting rupee cost averaging benefits at the same time.
- You can easily get mutual funds tailored towards helping you achieve your specific goals. They are suitable for almost all types of investors ranging from high net worth individuals looking to diversify their portfolios to salaried/self-employed individuals looking to create a corpus for the future.
- Transparency and safety levels are also higher in the case of mutual fund investments. Investing with a good mobile app like Groww can help you find all information about mutual funds at your fingertips. AMCs are also regulated stringently via statutory government organizations such as AMFI and SEBI which ensure healthy and secure protection for investments. The fund manager’s credentials can be easily verified along with his/her qualifications, experience, and AUM (assets under management) along with solvency information relating to major mutual fund firms/houses.
- Mutual fund houses usually deploy investments collectively in several assets. This leads to higher savings in relation to transaction costs and several other charges as compared to individual transactions. The savings that are generated are easily passed onto all investors. This ensures lower costs of making investments in these assets. The fees/charges for asset management solutions are also comparatively lower since they are divided amongst all investors in a particular mutual fund scheme.
As can be seen, mutual funds come with a bouquet of benefits for almost every investor. They have decent liquidity (with the exception of ELSS or equity-linked savings schemes that have 3-year lock-in periods. However, post-expiration of this period, units can be easily sold without any hassles) levels and give you a more convenient way to build wealth for the future. You can start out with smaller amounts as per your convenience and scale it up in the future. Your risks are naturally diversified and you get to accomplish future goals with a little discipline.
On a Closing Note
Building up your savings and creating future security is thus easier with mutual funds and there is literally something for everyone as far as schemes/products are concerned. Additionally, you get the benefit of compounding, rupee cost averaging and professional management which does not pinch your pocket at all. In other words, it is a win-win by all means! However, you should carefully read the fine print before signing on the dotted line.
Remember that each and every mutual fund investment will come with tangible market risks. As a result, it is always better to make an investment on the basis of your own risk appetite and financial position. While there are numerous advantages of investing in mutual funds and you should definitely check the same closely, you should always have a balanced and rational approach towards investing. With a little homework, patience, and perseverance, you can definitely build up a sizable corpus for the future.