Why Should You Invest In Mutual Funds?
Some of the reasons that make mutual funds the best investment alternative are mentioned below:
1. Professional Expertise: Investing your hard-earned saved money in the market is a critical job to do. One needs to research the market and properly analyze the market and choose the best option available among the various investment alternatives. A significant amount of time and commitment is required to gain knowledge about the macro economy, different sectors, company’s financials, etc. before investing.
Investing in mutual funds can save individuals from all these because, in mutual funds, funds are managed by professional fund managers. Professional fund managers are experienced and competent persons who have seen many economic cycles, business developments, and political & policy changes and are responsible for managing the funds and making profitable investment decisions on the investors’ behalf.
2. Potential Higher Returns: Investing in mutual funds can give potential higher returns as compared to traditional investment options. Mutual funds don’t have fixed interest rates but are linked to the market’s performance. Market performing well guarantees a better return when invested through mutual funds. However, it can also negatively affect returns when the market does not perform well.
3. Diversification: In mutual funds, investment is diversified as the whole amount is not invested in one alternative but in various alternatives. Investing in a single asset is not preferable in any scenario, as there is a risk of loss if market crashes. With a diversified portfolio risk of loss is minimised. In mutual funds, professional fund managers include as many as 30 stocks across different sectors in a single fund. By choosing to invest through mutual funds, investors achieve diversification instantly.
4. Tax Benefits: Investors can claim a tax deduction of up to ₹1.5 Lakh under Section 80C of the Income Tax Act by investing in the Equity Linked Savings Scheme (ELSS). Equity Linked Savings Scheme (ELSS) is a specially designed scheme for individuals who want to save tax. It comes with a lock-in period of 3 years, i.e., one can only withdraw their money after the lock-in period ends.
5. Transparency: Mutual funds are transparent in nature. Scheme Information Document carries details about the holdings, fund manager, etc., and are easily available on the fund house’s website and other sources as well. Any investor can track the NAV of the fund anytime they want and take the decision about whether they want to continue with their investment or move to a different alternative.
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