A common question among new investors is where to invest money. With several options, it can be confusing to decide which is suitable for your needs. Many Indians invest in mutual funds, making them a popular investment choice. Here we look at some reasons to invest in mutual funds.
This article covers:
- Ease of investing
- Allow investing with small amounts
- Tax benefits
- Ideal for new investors
- Transparency of performance
Benefits of mutual funds
There are many reasons why investing in mutual funds is a better option for your investment. Below are a few benefits of mutual funds:
Ease of investing
Like all investments, mutual funds require some initial paperwork for KYC purposes. However, once your account is operational, mutual fund investment can be made with ease. Specifically, a Systematic Investment Plan (SIP) is a popular route for investment in mutual funds. As of Apr 2021, there were 3.73 cr Systematic Investment Plan accounts being used for mutual fund investments. In a SIP, you simply decide on an amount to be invested in mutual funds every month. Each month, the amount will be deducted from your linked bank account automatically for your investment in mutual funds.
Allow investing with small amounts
Mutual fund investments can be made even with small amounts. For instance, you can invest in a SIP as low as Rs 100. Even without SIP, you can invest in a mutual fund in small denominations of Rs 100 or Rs 500. This makes investment in mutual funds a viable option even for people with low incomes or those with high incomes but other commitments such as mortgages.
Investments in a specific type of mutual funds, known as Equity Linked Saving Schemes (ELSS), provide tax benefits under Section 80C of the Income Tax Act. ELSS schemes offer the highest growth potential among the various tax-saving options. Also, all investment options with tax benefits come in with a specific lock-in period. ELSS provides the lowest lock-in period (3 yrs) among other tax-saving options.
Ideal for new investors
If you are looking to invest in stock markets, you need some basic knowledge of how it works, a company’s financial statements, price history of various stocks, and so on and you can find these details on Tickertape app or website. However, most new investors may not have the knowledge or the time to do this kind of research. Mutual funds are managed by professional fund managers who have experience in managing portfolios. This way, you do not have to worry about the highs and lows of the markets as someone is doing this job on a full-time basis.
Transparency of performance
When it comes to choosing mutual funds, there are a lot of options available. For example, you can track the 5-yr returns given by different mutual funds. It should be noted that past performance is not an indicator for the future, but it can give investors some data to evaluate different mutual funds.
Overall, mutual funds are an excellent option if you are new to investing or do not have the time to manage your portfolio actively.