Your twenties are that era when you are exposed to certain investment concepts such as understanding the importance of investing of investing and creating a financial plan. You must have often stumbled upon mutual funds as the one of the best investment options to grow your money. Have you ever wondered why? This article aims to disclose seven distinct reasons why you must invest in mutual funds.
Why should you invest in mutual funds?
Following are seven reasons why you must invest in mutual funds:
- Professional management
One of the primary reasons why mutual funds are so desirable is because of the fact that they provide professional management to investors. Mutual funds are one of the few investment vehicles that provide professional management to its investors. These experts are known as fund managers and have abundant experience, knowledge, and understanding about the markets and its workings. These investors help to generate wealth on behalf of the investors.
Owing to the different types of mutual funds available to an investor, an investor can easily have a diversified investment portfolio with mutual funds. Diversification is the process of spreading your investments across different asset classes in a way that it diminishes the exposure to any one type of asset class. This strategy is extremely helpful an offsetting the losses arising out of one type of investment against gains by other type of investment.
- Well regulated
All mutual funds are heavily regulated by a regulatory body known as SEBI – Securities and Exchange Board of India. SEBI has mandated all fund houses and AMCs (asset management companies) to follow certain directives laid by them. This allows for greater transparency among investors.
- No need to research the markets
If for some reason you do not have the time and resources to research the markets, don’t worry. Mutual fund investments have got your back. Unlike stocks, mutual funds do not demand their investors to research and short-list the stocks. Further, you don’t even need to regularly monitor your investments, your fund manager does all that work for you.
- Disciplined investing
Mutual funds allow investors to divide their entire investment amount into small, inconsiderable investment amount through SIP (systematic investment plan). Under SIP investment, small amounts are invested on a regular basis for a defined period of time. As a particular amount is regularly deducted from an individual’s bank account on a periodic basis, it instills a sense of investment and financial discipline.
- Reduce tax outgo
There are certain types of mutual funds that help to reduce an investor’s tax outgo. These mutual funds are known as ELSS or equity-linked savings schemes. ELSS mutual funds allow a tax deduction of up to Rs 1.5 lac per annum as they are one of the section 80C investments. In essence, you can save up to Rs 46,800 by investing in any Section 80C investment. Thus, these funds offer dual benefits to investors.
- Safe and secure
Mutual funds invest in securities that are mandated to disclose certain details such as their complete list of holdings on a regular basis. They are also heavily audited by AMFI (Association of Mutual Funds in India) and SEBI.