Investing in mutual fund investments is a brilliant financial strategy millions of people have been instilling while planning for a secure future. Not only are mutual funds a great way to combat the unforeseen changes in the global economic climate, but they are a great way of increasing wealth if you strategize it carefully.
What are mutual funds?
Mutual fund investment is an investment scheme where money is pooled from different investors and put into other securities, like stocks, bonds, gold, and shares, to name a few. Mutual funds can be a good starting point for inexperienced investors exploring the world of investments for the first time. There are several reasons why mutual funds should be your one-stop solution for getting started with investments.
- They carry lower risk: The most significant advantage makes mutual funds the preferred choice for inexperienced investors. Since the money is invested into different securities, the risk is diversified. To elaborate, if your investments are put into gold and stocks of a company, and the stocks don’t do good in the financial year, the loss can be compensated by the gains gathered through gold. Given the lower risk, it’s essential to consider that mutual funds, on average, offer lesser returns than other schemes of investments. However, that doesn’t mean you can’t achieve your financial goals with mutual funds. If you wish, you can go forward with SIP investments to have a much more precise breakdown of the amounts you’ll have to invest periodically to attain your financial goals under the specific period.
- Experts handle them: Beginners are expected to have limited knowledge of the market. Thus, with mutual funds, experts have your back. They do the market research and analysis for you, so you don’t have to spend hours doing tedious, essential tasks. All you’ll have to do is invest in mutual fund and get an expert to handle things at a fee much lower than that of a stockbroker.
- They have shorter lock-in periods: Unlike stock and shares, mutual funds have a shorter lock-in period. Although, it’s essential to keep in mind that the lock-in period for different mutual funds will vary depending on what scheme you choose. Usually, the minimum lock-in period for most mutual funds is three years.
- You can get started with less investment: Unlike large investment schemes, mutual funds allow you to invest in smaller amounts if you wish to. A systematic investment plan (SIP) works best for investors who get a monthly paycheck because they get a clear picture of how much they’ll have to invest per month. Additionally, they are easier to buy, and risks associated with different plans are highlighted for the ease of new investors. Investors can also view the credentials of various fund managers before investing.
- You can save a lot on taxes: For both seasoned and rookie investors, tax saving mutual funds are a holy grail. If you’re an investor investing in India, an equity-linked savings scheme would be the option you’re looking for to save as much as you can on taxes. It is the only mutual fund that exempts up to 1.5 lakh tax annually. Sadly, gains on other mutual funds are subjected to taxes in India.