Why should You choose Mutual funds as an investment?

After Demonetization, many banks lower the interest rate for the Home Loan as they have the surplus cash in hand which makes easy for the person to purchase the home at cheaper rates.
The decrease in the interest rates also results in the lower return rate from the different government and bank related investment instruments like Fixed Deposit, Recurring Deposit, PPF etc.

So these safe deposits and longterm investment plan will not be going to fulfill the one’s retirement plan. If we look into the other investment option, first we come up in the mind of the Equity investment which provides the good returns since a decade.
The Market went up around 400% from 2008-2009 till the date I am writing this blog.

It is the safe investment? How should I know which companies perform better in future? How should I get the terminologies/approach/knowledge related to the market?
These are some common question which arises while thinking of the Equity investments from the individual’s mind.

So for all of the above questions we have the only solution for this are Mutual Funds.

What is the Mutual Fund?

A mutual fund is a professionally-managed investment scheme, usually run by an asset management company that brings together a group of people and invests their money in stocks, bonds, and other securities.

All the mutual funds are registered with SEBI. They function within the provisions of strict regulation created to protect the interests of the investor.

Major benefits of investing in mutual funds:

One of the biggest mutual fund AMC provides the below advantages to investing in:

  • Mutual fund investments are more or less stress-free: Investments are always surrounded by a degree of uncertainty. An investor is scared of investing due to lack of adequate knowledge & time, self-discipline, or investing experience. Mutual funds fit in perfectly in this situation as they have an inherent design to tap professional expertise to manage investments which, in turn, relieve the stress of the investor.
  • Mutual funds offer diversification: Diversification of assets is a rule for both large and small businesses. This is done so that an unexpected loss by a collapsing stock will have a minor effect on the rest of the portfolio. Without a mutual fund, the investor will invest their little chunk of investment in one or two stocks thus exposing oneself to a higher amount of risk.
  • Mutual funds offer tax benefits: Mutual fund investments which are held for long-term (12 months or more) qualify for capital gains 7 are taxed accordingly. Mutual funds also have a benefit of indexation.
  • Mutual funds have liquidity: In open-ended mutual funds, an investor has an option of redeeming all or a part of their investment at any given time to get the current value of the stocks held. This process is standardized which makes this procedure efficient & fairly quick so that the investor can get their money as soon as possible.
  • Mutual funds are transparent: The performance of a mutual fund is reviewed regularly by several agencies, publications & professionals. This makes it easier for an investor to compare different funds to each other. As an investor in the fund, one is provided with regular updates like monthly account statements, monthly and half-yearly portfolio disclosure etc.,

If we talk about the percentage of the return generated by Mutual funds in last 5 years has been double or triple the money you have invested.

Find below return from last 5-year tenure of different mutual funds.

Return Matrix for different mutual funds

So these are the some of the benefits of the mutual fund investment. But still, you are in confusion that which mutual fund should I choose to invest for.

So stay tuned with us for our next blog for the same.

Thanks

Happy Investing!!!

2 thoughts on “Why should You choose Mutual funds as an investment?

  1. Can you elaborate on the tax saving benefits of mutual funds ?
    What is the maximum and minimum investment required to avail tax benefit ?

    What is meant by indexation benefit ?

    What is capital gain 7 ?

    1. Hi Saumya,

      Mutual funds comes with different types or flavors, one of them is tax saving mutual funds, which comes under the category of the ELSS(Equity linked saving scheme). As per Income tax 80C rule, you can avail the tax benefits of upto 1.5 lakhs through ELSS which helps in paying the less tax and gain the equity like investment. Very soon we are going to post a blog on the same. So keep in touch with us!!

      You can start investing in ELSS through SIP with minimum amount as Rs. 500 per month and no maximum limit to invest. if you go with lumpsum, minimum Rs.5000 to no maximum limit.

      Indexation in simple terms helps investors in long-term debt funds to save taxes and tackle inflation. Suppose you have invested Rs 1 lakh in debt mutual fund scheme in February 2013 and sold it for Rs 1.4 lakh in May 2016. Since the investment was held for more than three years, it qualifies for long term capital gains taxes with indexation benefit. More we are going to discuss in upcoming blog.

      Capital gain = Amount Earned – Amount invested.

      Thanks

Leave a Reply