6 Reasons Why You Should Invest In Mutual Funds

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Mutual funds are one of the most sought after investment avenues for investors. That’s because these are a pool of skillfully managed funds which offer dynamic risk management. Mutual fund managers invest in  diversified portfolios of funds and securities and implement an investment strategy to help the scheme outperform its underlying benchmark. There are plenty of mutual funds schemes to choose from and hence it is essential for investors to understand their appetite for risk before investing. What fund houses do is that they collect money from investors sharing a common investment objective and invest this pool of funds across the foreign and Indian economy. Depending on the investment objective and the nature of the scheme a mutual fund may invest across various asset classes and money market instruments. For example, an equity mutual fund will aim at generating capital appreciation by predominantly investing in equity and equity related instruments. On the other hand, a debt fund invests in fixed income securities like call money, company fixed deposits, G-Sec, etc. for income generation.
Here are 6 reasons why one should consider investing in mutual funds –

These are professionally managed funds – Mutual fund houses hire an elite team of analysists, market researchers and fund managers who work together in helping the scheme achieve its investment objective. Unlike stocks, mutual funds invest in a diversified portfolio of securities thus offering active risk management for its investors. Thus, there is a very less chance of your portfolio getting affected since it is managed by a team of industry experts.

Mutual funds offer liquidity – Most mutual funds do not come with a predetermined lock in period. This means investors can buy or sell their mutual fund units at their own convenience. However, in order to make the most out of your investments it is better to keep a long term investment horizon while investing in mutual funds.

Mutual funds help achieve long term goals – Some mutual fund schemes like equity funds and hybrid schemes are meant for long term investment. This also means that investors can target their long term goals like retirement planning, buying a weekend home by the countryside, sending their daughter overseas for foreign education etc. using mutual funds. The key to successful investing is remaining patient and keeping a long term investment horizon.

Mutual funds offer SIP investment option – A Systematic Investment Plan is an easy and hassle free method to invest in mutual funds. If you are a KYC complaint individual, you can start investing in mutual funds from the comfort of your home using a laptop and a decent internet connection. Investors get to choose the investment amount as long as it complies with the minimum investment amount mentioned in the offer document. One can even refer to an online SIP calculator in order to determine how much they need to invest at regular intervals to achieve their long term goals.

Mutual funds offer better capital appreciation – Over the long term, mutual funds have offered far better capital gains as compared to traditional investment avenues like bank fixed deposits. They are far more liquid in nature are compared to traditional schemes and have historically churned better returns as compared to traditional schemes offering fixed interest rates.

Mutual funds offer growth and dividend option – Depending on their income needs and investment objective, investors can decide whether they want to go with the growth option or dividend option. In growth option, the interest earned by the scheme is reinvested. Investors can benefit from compounding in growth option. Growth option is ideal for long term investors. If you are investing in mutual funds for regular income, then dividend option might be more feasible. However, the intervals at which a fund house will distribute dividends is uncertain.

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