When it comes to investment decisions, most investors prefer investing in mutual funds. It is one of the best options for you as an investor to achieve your personal and financial goals. Don’t believe us? Following are the top 6 reasons why mutual funds are the best way to start investing:
- Helps to create a diversified portfolio
Mutual funds invest in two main asset classes, namely, equity and debt funds. Then there are other funds that invest in both equity and debt, these funds are known as hybrid funds. The primary benefit of mutual funds is that you get exposure to a variety of fixed income instruments or shares. Owing to the nature of a diverse portfolio, if a few securities tend to underperform, then investment in other securities will compensate for your losses.
- Easier to start
Mutual funds are one of the easiest ways to invest in the markets. To invest in mutual funds, all you need is a bank account and your Permanent Account Number (PAN) details. Mutual fund investments do not require a DEMAT account.
- Offers high liquidity
One of the key reasons why mutual funds attract a high customer base is that they offer high liquidity. If an investor decides to invest in open-ended mutual funds, he is free to sell and buy units any time as per his convenience. This helps the investor during a financial crisis, during which he can liquidate mutual funds to save himself from the distress situation.
- Reduces your tax liability
If you want to enjoy tax benefits while investing in mutual funds, you should consider investing in Equity-Linked Savings Scheme, also known as ELSS funds. It is a type of mutual fund that offers dual benefits of wealth creation and tax liability. According to Section 80C of the Income Tax Act, 1961, investors can claim a tax deduction of up to Rs.1.5 Lakh by investing in ELSS mutual funds. As an investor, you can save up to Rs46,800 by investing in ELSS funds.
- Potential to earn higher returns
Since mutual fund investments are subject to market risks, they have the potential to earn significant returns. Equity funds have historically offered returns around 14-16% when invested for a long duration.
- No prior knowledge or expertise required
One of the best things about investing in mutual funds is that you don’t require any prior knowledge or expertise. This is because your funds are managed by a mutual fund expert known as a fund manager who analyses the investor’s risks and needs and simultaneously picks out the best-suited fund for their investments.
You can invest in mutual funds either via Systematic Investment Plan (SIP) or Lumpsum mode. Always consider your risk appetite, investment tenure and personal goals before choosing your investments. Happy investing!