One of the distinctive characteristics of mutual funds is that they don’t adhere to the one-size-fits all philosophy. Rather, they offer investment avenues to individuals falling under different age groups, income brackets, risk appetite etc. Mutual funds might suit people with experience in the financial markets as well as those who have just decided to begin their financial journey. While, one might find many benefits of investing in mutual funds, some of them are listed below:
- When one invests in mutual funds, their investments are likely to be diversified across various asset classes. This diversification can spread the risk evenly across an investor’s portfolio.
- Mutual fund investments are managed by teams of expert fund managers, who actively manage the performance of a mutual fund. They aim to attain potential returns that correspond to the risk level of a mutual fund scheme. Returns cannot be guaranteed owing to the volatile nature of the markets
- All mutual fund houses are registered with and are regulated by the Securities and Exchange Board of India (SEBI) and are mandated to disclose all the information with regards to the mutual fund scheme they offer, to the public. This makes it simpler to understand mutual funds and may allow investors to analyze them prior to investment.
- Certain categories of mutual funds can offer some liquidity that consumers may find suitable, while others offer potential for capital appreciation.
- Some mutual fund schemes also offer tax exemptions and benefits.
- Mutual funds may allow investors to enter (purchase) and exit (redeem) a scheme at any time they wish, subject to exit load (if any) and tax implications.
- Investments through Mutual funds can be considered as affordable, as SIP (Systematic Investment Plan), a mode of mutual fund investment, allows investors to begin investing with an amount as low as INR 100.
When it comes to choosing a mutual fund investment, it might help investors to consider the following factors –
- Financial goals (both short-term, medium-term and long-term in nature)
- Risk appetite (willingness and ability to take risk)
- Time horizon (the amount of time required to achieve their goals)
Once an investor identifies and understand the above factors, they can align them to a mutual fund scheme that suits them. Investors may also choose to seek the counsel of a financial advisor to make prudent investment decisions.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.