What Are the Advantages of Investing in Mutual Funds?

Shraddha is a 25-year-old IT professional drawing a good salary every month. She’s heard that getting a head start on investing can be useful. When she’s considering different options, a friend of hers tells her about the various benefits of investing in mutual funds.

If you are in the same boat right now and are wondering why mutual funds over instruments like fixed deposits or even equity, this article is for you!

What is a mutual fund?

Before looking at why mutual funds and what mutual funds to invest in, let’s begin by breaking down what a mutual fund is.

A mutual fund is a pooled investment option wherein a fund house collects money from different investors and invests that in market securities. These could be stocks, debt instruments like corporate or government bonds or even assets like gold.

Mutual funds are a great investment option for individuals looking to grow their money over a period of time.

Advantages of Mutual Funds

Mutual funds are becoming popular investment avenues for people today, especially youngsters. This is because of the numerous benefits of investing in mutual funds. Here are the top 5 reasons why mutual funds are a great investment choice:

1. Naturally-diversified investment tool

One of the thumb rules of smart investing is to diversify investments. Putting all your eggs in one basket can spell disaster if there is a sharp correction in the market. Mutual funds are naturally-diversified investment avenues. A fund invests across asset classes and industries so as to make the best of investors’ money. You don’t have to worry about doing this on your own.

2. Professional management

Would you trust anyone to prescribe medications or self-medicate when you are sick? It’s always advisable to go visit a doctor for the same. Similarly, why entrust your money to anybody? Mutual funds are managed by professionals. They study the market and invest in such a way that your money works for you. It’s also a great option for those who lack sound financial knowledge since you don’t have to do much market research. You simply need to find what mutual funds to invest in that meet your financial goals.

3. Higher returns than FDs and lower risks than equities

Another advantage of mutual funds is that they provide market returns. Fixed deposit instruments provide a lower rate of return when compared to mutual funds. Even debt mutual funds can give you higher returns than FDs. At the same time, because they are diversified instruments, they are less risky than investing in stocks. That’s the kind of balance that works when it comes to investments!

4. Extreme ease

You can invest in mutual funds with as little as Rs. 500 if you choose the systematic investment plan route. You can also invest in mutual funds online through your bank. Liquidating mutual funds is as simple as clicking one button on your screen. This ease is one of the biggest advantages of investing in mutual funds.

5. Tax benefits

Special mutual funds called equity-linked savings schemes also come with tax benefits. You can claim deductions under Section 80C of the Income Tax Act if you invest in these. They provide all the other benefits of mutual funds, but come with a lock-in period of 3 years. Small price to pay for a good investment decision, right?

When considering what mutual funds to invest in, make sure you base the decision on the following factors:

1. Your individual financial goal
2. Your risk appetite
3. Your investment time horizon
4. The fund performance and history

With so many benefits, investing in a mutual fund is certainly the best way to grow your money. If you are looking to invest in mutual funds online, look no further than Mahindra Finance invest solution ,an investment portal that you can trust.