For many years, mutual funds have been an attractive investment option for those looking to build their wealth. The fact that they offer so many benefits makes them an attractive option for novices and experienced investors alike. We’ll examine the main reasons you should use mutual funds to help with your financial planning in this article.
Professional Management
The portfolio management by qualified fund managers is one of the biggest benefits of mutual funds. Mutual funds are managed by professional money managers with the experience and resources to buy, sell and monitor investments. A fund manager must keep a close watch on the investments to achieve the plan’s goals. They also rebalance the portfolio when necessary.
Risk Diversification
Buying shares in a fund allows you to diversify your assets among different securities, such as gold, bonds, and stocks. This is a good option when there are challenges with a mutual fund scheme. Diversification can compensate for the risk of one asset class. Diversification allows for other investments to remain unaffected and even increase in value when one asset class declines in value.
Affordability and Convenience
Most mutual funds have lower initial investment requirements, making them more affordable and convenient for investors. Mutual funds invest primarily in debt and equity. Some funds invest their entire financial investment in debt funds while others allocate it to equity funds. The remainder is invested in balanced or hybrid funds. Mutual funds allow you to invest the entire amount all at once, or a set amount on a regular basis. The first option is called Lumpsum, while the second option, Systematic Investment Plan or SIP provides a convenient option for everyone.
Liquidity
Mutual funds are much more liquid than other options, such as infrastructure bonds, post office schemes and life insurance. Open-ended mutual funds are also known as liquid funds because investors can redeem their units anytime during business hours. Closed-ended mutual funds, on the other hand, allow redemption of units only at maturity.
Low cost
Mutual funds are incredibly affordable. When you purchase direct equity, you will be required to pay brokerage fees and the Securities Transaction Tax. Costs increase as you process more transactions. Mutual funds can offer investors lower transaction fees because they execute large volumes of trades.
Mutual funds are well-regulated
The capital markets regulator, Securities and Exchange Board of India, (SEBI), (Mutual Funds Regulations, 1996), oversees the mutual fund industry. SEBI has set up strict guidelines to maintain investor safety and transparency, as well as a framework that is suitable for mitigating risks. This ensures greater security when investing.
Tax Benefits
Under section 80C of Income Tax Act of 1962, an investment into an ELSS can be deducted up to Rs 1,50,000 from taxable earnings. Tax-efficient investments are mutual funds with a longer-term.
Mutual funds are a great way to diversify your portfolio. Investors who are looking to grow and build their wealth will find it attractive because of its features and tax benefits. It’s important to do thorough research and understand the mutual funds that you are considering. You can also consult a financial advisor, if necessary. There are many online platforms, such as 5paisa, that offer services and guidance in the area of investing.