Most people do not realize the concept of savings till they hit their 30s. However, it’s never too late to start and if you are in your 20s then it’s even better as you will have more time to build your corpus. Those who start early have more years in hand and hence, they can achieve a higher amount by investing lower sums than those who start late. If you have already saved some capital and are looking for investment options, or even if you do not have any savings but are willing to save and invest a portion of your monthly earnings, you can consider the option of mutual funds.
Here are the top 5 reasons to invest in mutual funds –
A diversified investment avenue
Mutual funds are a pool of professionally managed funds that invest in a diversified portfolio of securities, asset classes, and money market instruments. A mutual fund’s portfolio comprises stocks that have growth potential. Investors get exposure to not one but multiple stocks by investing in a single mutual fund product. Diversification is the key to building a successful and rewarding investment portfolio. Diversification does not only gives investors an opportunity to benefit from multiple securities but also mitigates their overall investment risk.
Investors can benefit from the power of compounding
In mutual funds, compounding refers to the interest that is earned from the current interest which is accrued from the initial investment sum. To witness the power of compounding investors need to give their investments some time to grow. Those who invest in mutual funds with a long term investment horizon often witness the compounding effect with their money as compounding is a gradual process that takes place in the long run. The longer you remain invested in your mutual fund investments and the more regular and systematic you are, there are higher chances of compounding your wealth into a commendable corpus.
Save tax and grow your corpus
By investing in tax saving mutual fund schemes investors get the dual benefit of tax exemption and long term wealth creation. Equity Linked Savings Scheme (ELSS) is an open ended mutual fund scheme that comes with a predetermined lock-in period and a tax benefit. It is the only mutual fund scheme to offer tax benefits under Section 80C of the Indian Income Tax Act, 1961. Also, ELSS has the shortest lock-in period of three years which means that investors can redeem their investments after 3 years. Also, since predominantly invests in the equity market, it gives investors an opportunity to take advantage of the equity market that can be rewarding in the long term.
You can start small
Some investment avenues require the investor to invest a large capital as an initial investment sum. However, that’s not the case with mutual funds because one can start their investment journey with a monthly SIP of 500. Systematic Investment Plan (SIP) is a simple and effective way to invest in mutual funds. Can even make a lump-sum investment but most people prefer SIP as it allows them to save and invest a fixed sum periodically.
Wide range of schemes to choose from
There are thousands of investment schemes for investors to choose from. Investors should diversify their investment portfolio with the right mix of equity and debt schemes to suit their financial goal, their risk appetite, and their investment time horizon. If they are entirely new to the world of mutual funds and need help with making an investment decision, you should consult your financial advisor to talk to a mutual fund advisor.