Mutual funds have been applauded, discussed, and often preferred by investors. An investor might wonder what makes mutual funds so demanded and preferred. So are mutual funds really worth investing in, or is it just the trend in the financial market? Well, the following reasons will help you understand why mutual funds are preferred by most investors of today to secure their future.
Easy to get started
It is pretty easy to start investing. You just need to create an account, complete KYC and set your investment goals. The mutual fund apps have made the entire process simple to invest in and easy to track performance.
Wealth creation
Mutual funds aim to generate returns and create wealth for their investors. With the power of compounding, the gains are reinvested and grow over time. Expert management optimizes returns by investing across different market capitalization, sectors, and themes per their type and strategy.
Expert management
An investor who is starting might lack expertise or experience in where and how to invest. Mutual funds are generally operated and managed by experts. The experts and professionals effectively combine the money from investors to distribute this through different securities, enabling the investors to make profits. The expert keeps a close eye on the timing of exit and entry and handles any challenges. All that is required is an investment, with the assurance that experts would run the rest in this sector.
Start small
To invest in a Mutual Fund, investors do not need to put up a large sum of money to invest in a Mutual Fund. Investments can be made based on cash flow. You can invest as low as Rs 500 per month and develop a disciplined approach to investing. You can use a SIP calculator to estimate your returns or how much you need to invest for a target corpus.
Risk diversification
It is known to be one of the most significant advantages of mutual funds. Every stock comes with 3 different risks such as sector risk, company risk, and market risk. There is an unsystematic risk which indicates industry and company risk. On the other hand, systematic risk means market risk. With investing in a varied portfolio of different companies from several sectors, the mutual funds are there to enable the investors to diversify the unsystematic risks. Individual stocks are susceptible to unsystematic and systematic risks, but mutual funds are only exposed to systematic or market risks.
Choose what suits you
Mutual funds provide different types of products for fitting investors’ investment goals and risk profiles. One of the advantages of investing in mutual funds is that you can choose the right product for your needs and risk tolerance. You can invest as per your goals, such as emergency funding, retirement, child education, owning a house, etc.
Liquidity
After bank deposits, open-ended mutual funds are one of the most liquid investments, significantly more liquid than life insurance plans, post office schemes, infrastructure bonds, and other investments. Open-ended funds allow investors to effectively redeem the units based on T+3 (transaction + 3 days). This makes it completely easy and seamless to withdraw when you need the cash in your hands. However, frequent withdrawals are discouraged from reaping maximum returns. You can fulfil your emergency needs by starting online, and the funds are credited to linked bank accounts.
The above factors have attracted many investors to invest in mutual funds properly. The disadvantages of investing are expense ratio or management fee, dilution, and lock-in periods in ELSS. Before investing, every investor must establish their investment goals, investment duration, and tolerance of associated risks. Then they must match their goals with the investment objective of the fund. Investors must use SIP and lump sum calculators to estimate what amount to invest. This will make sure that you make a well-informed investment decision.
