As a popular investment vehicle for numerous investors in India, mutual funds provide professional investment management and potential diversification. Their many features and benefits have helped thousands of investors build wealth over the years.
Let us consider the salient features of mutual funds in India:
Active and professional management: Skilled financial inclusion experts actively manage many types of mutual funds and are responsible for the holdings in a particular scheme. These managers ensure that investors’ objectives are met through in-depth consideration and analysis in deciding the fund’s journe
Complete or part redemption: If you have invested in an open-ended mutual fund scheme, you can redeem all the units or part of the investments at any point, when needed.
A fund for everyone: Given the variety of mutual funds, their types, categories and options available, you can find a mutual fund for your need. Find the right mutual fund aligned with your time horizon and financial goals.
A broad spread of assets: Based on market capitalization and the industry, mutual funds in India invest in a broad category of assets. Since it can be near impossible to manage investments actively across assets and schemes, professionally managed mutual funds can be the answer to your financial objectives.
To add to the above, here are the benefits of mutual funds:
Diversification: Mutual funds spread their holdings across a variety of investment vehicles. This is critical in reducing the effect of a single security or class of securities on your overall portfolio. This meansthat even if a class of securities does not perform well, you could benefit from the traction of other securities.
Tax saving instruments: You can also save tax by investing in Equity Linked Savings Scheme (ELSS), otherwise known as tax-saving mutual funds. ELSS offers tax benefits up to ₹1.5 lakhs in a financial year, under Section 80 C of The Income Tax Act. However, there is a mandatory lock-in period of three years.
The magic of SIP: To invest in mutual funds, you do not require a substantial amount. You can begin your mutual fund journey with an amount as low as ₹500. This can be a huge boon for new investors looking to test the waters or do not have a large amount to invest.
Convenience: Investingrequires a good deal of research and analysis. For instance, if you want to acquire holdings comparable to most mutual funds, you would need to purchase a large range of securities. Besides, you would have to manage them minutely. But with mutual funds, you do not need to micromanage your portfolio.
Range of investment options: If you are determined to complete your financial goals, mutual funds can be an ideal tool in inculcating financial discipline. While there are many ways to invest in a mutual fund, you can opt for a lump sum or SIP method, based on your convenience. Through SIP, you can monitor the fund’s progress and make adjustments to the SIP amount. You can also choose the frequencies of your SIP, opt for systematic withdrawal plans or modify it based on your requirements.
Conclusion
Mutual funds carry a certain level of risk. There may be changes in interest payments or dividends, while NAVs could change due to market directions. However, with a long-term horizon in mind, you can ride market volatility by way of the SIP option. Mutual funds are beneficial in many ways, and there is one for each investor.