Earn. Save. Spend. This is the cycle of money that we live by every month, if not every day, of our lives. By now, I am sure you know the importance of saving. Perhaps, you’ve even realised the significance of investing. If not, here’s a quick reminder when you save, your money sits idle. When you invest, your money multiplies. Your investment choice can, obviously, significantly impact the rate at which your money compounds. While there are enough opinions on what you should be doing with your money, here are 5 reasons why mutual funds should definitely be a part of your wealth building portfolio.
Higher returns
Isn’t this what all of us seek from our investments? Mutual funds provide the right avenue for investing in a variety of market linked instruments, which have time and again delivered superior returns compared to other traditional investment options. Debt funds have consistently beaten Fixed Deposit (FD) returns, and with bank interest rates going south, they present a good investment choice for investors with lower risk appetites. For the more adventurous investors, equities (shares) present a great investment avenue, for higher, inflation-beating returns. Data reveals that equity funds have delivered around 11-15% returns over the last 10 years. With inflation averaging at 4-6%, you could get a head start on your savings, by identifying and investing in the right mutual funds today.
Less/No lock-in
Almost all traditional investing instruments come with long lock-in periods, which make it hard for you to get your money out, in times of emergencies. Mutual funds, on the other hand, broadly come with less, if not no, lock-in periods. Most funds do not have a lock-in period and give you the flexibility to redeem your money when you need it. Even tax-saving Equity Linked Savings Schemes (ELSS) come with a short lock-in of only 3 years. So you are saved the hassle of fixed, long lock-in periods, as seen in other investment options. Having said that, experts recommend that a fund should not be redeemed until the goal for which it was started is fulfilled, as the longer you stay invested, better are your chances for higher returns.
The fund with your name on it
Within the world of mutual funds there is a wide variety of investment choices to pick from equity funds, debt funds, liquid funds, tax-saving funds etc. So, depending upon your profile, goal and preference, there are various funds that are ideal for you. Unlike a PPF or an NSC, where the rules are already laid down for you, here you can choose what type of fund you want, how long you want to stay invested, how much you want to invest, and much more. Just like how a tailor made outfit is often a better fit for you than a ready-made garment, a personalised mutual fund portfolio with the right advisor is the best fit for your goals.
Diversification
We’ve all heard the adage “Don’t put all your eggs in one basket”. This is the premise of diversification. It means spreading your investments across asset classes and stocks, to reduce your risk. With mutual funds, you get the advantage of default diversification, as your fund manager invests across a variety of stocks. Sudden changes in one stock, are likely to be balanced out by the performance of other stocks in the fund. It is an ideal way to get a taste of the equity markets, but with lesser risk.
Disciplined investing
Habits are hard to break. This is why we are advised to inculcate good habits. And what better habit could there be, than investing for your secure future? When you start a Systematic Investment Plan (SIP) in a mutual fund, you are committing to invest a certain amount on the same day of the month, consistently for a certain number of months/ years. Such a commitment instils in you, the discipline to take a productive action towards your future. It becomes a fixed component of your monthly spend, around which all other expenses have to be factored
Seventh of every month is now being declared as Mutual fund day, so let’s herald in a new way of investing starting today.
