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Thursday, September 16, 2021

WHY YOU SHOULD START INVESTING IN MUTUAL FUNDS

You must have constantly warned about investing your money in the right type of investment, as failing to do so would mean inflation having the better of you. This means that the value of your money would decrease over time. However, what is the right investment option for your portfolio? Having an abundance of investment options offered to an investor, one is usually overwhelmed in selecting the right type of investment for their portfolio. One such ever-green investment option is mutual fund investments. Mutual funds are ideal for all investors – old and new. This article focuses on several reasons why an investor must invest in mutual funds.




Why should I invest in mutual funds?

Here is a few reasons why you must consider investing in mutual funds:

1.      Power of compounding


You must have heard about the wonders of the power of compounding. Compounding helps your investments to grow at an exponential rate over time. Under compounding, the returns achieved from an investment are reinvested to earn more returns. As time is directly proportional to compounding, the earlier and longer you stay invested, the more you are likely to benefit from the power of compounding.

2.      To earn high returns


Mutual funds have the potential to generate significantly higher returns than most from investment options. This helps investors to not only earn inflation-beating returns but use these returns to achieve their financial goals and live a better quality of life.

3.      Professional management


One of the primary reasons why mutual fund investments can serve as a great investment option for your investment portfolio is the professional management it offers to investors. Mutual funds are managed by a mutual fund expert known as fund manager who is endowed with adequate knowledge and skills required to manage your investments.

4.      Helps to diversify your portfolio


Another important feature of mutual fund investment is that it helps to create a diversified and balanced investment portfolio. This is not offered by other types of investments. You can invest a part of your portfolio towards equities that can help in serving your long terms and wealth creation. Another part can be dedicated to fixed income securities that can cater to your short-term needs or wealth preservation.

5.      Liquidity


Mutual funds are a great investment option if you are looking for liquidity in your investments. Investors can withdraw from their mutual fund investments whenever they wish to. However, one must be mindful of certain mutual funds that have a lock-in period, such as ELSS tax-saving mutual funds that have a lock-in duration of three years.

6.      Tax benefits


Capital gains earned on mutual fund investments are taxed according to several factors. Long-term capital gains (LTCG) on equity funds of up to Rs 1 lac per annum are exempt from paying any tax. Also, LTCG on debt funds are taxed at 20% with the benefit of indexation. This reduces capital gains tax, and thus increases net gains (or decreases net losses) earned by an investor. Also, tax-saving mutual funds – ELSS funds offer a tax benefit of up to Rs 1.5 lac per annum under Section 80C of the IT Act, 1961. 

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