Mutual Funds | March 04, 2017
With a plethora of investment options right from stocks to bonds to money market shares, there lays a question in investors’ minds why they should invest in mutual funds over so many choices of investments in order to achieve their much needed financial goals. Well, here we are to answer the question “WHY” they should invest, but before we proceed, let us provide you with a statistic on the growth of mutual fund investment over last two to three years.
According to the data from the Association of Mutual Funds in India, the mutual fund industry is witnessing a steep growth of investment as it touched Rs. 16.46 trillion in December 2016 and expects to cross 20 trillion by the end of the year 2017. This confirms that a robust growth of mutual fund investment is coming on the way as investors are likely to invest their major share of hard-earned money in Systematic Investment Plans (SIP).
Now, this must be raising a curiosity in your mind that why there has been a steady growth in the numbers of mutual fund investors, which in a way also leads to answering the question why you should invest in mutual funds.
Systematic Investment Plan: A disciplined systematic investment plan is the answer to preventing the pitfalls of investment and enjoying maximum returns from mutual funds. It is a planned approach towards investing a predetermined amount at a regular interval (weekly, monthly and yearly) in a mutual fund scheme after calculating the savings and wealth you are likely to build for the future. The biggest advantage of SIP is that you do not need to time the market and therefore, stand a lesser chance to missing out a larger rally when the markets are doing well, or entering at a wrong time when the markets are on the verge to decline. Moreover, it is the easiest and most flexible way of investment as your allotted money will be auto debited from the bank account and invested into a specified mutual fund scheme every week, month or year.
Beat Inflation: Unlike traditional investments in fixed deposits, mutual funds help you to generate better inflation-adjusted returns by investing a minimum time and energy on it. In a nation like India where most people let their savings grow in a bank, they do not consider the possibility that inflation may nibble away its value.
For instance, you have Rs. 100 as savings in your bank account with which you can purchase 10 bottles of water. The interest rate per annum is 5 percent which will result in having Rs. 105 in your bank. Now if the inflation rises by 10 percent which means, if the price of one bottle of water becomes Rs. 11, then by the end of the year, you will not be able to afford 10 bottles of water with Rs. 105.
However, on the other hand, mutual funds offer you an inflation adjusted growth, so that your purchasing capacity does not drop over a year due to inflation.
Low Investment Cost: Another big advantage of investing in mutual funds is its low cost of investment. One can invest in mutual funds with as low as Rs. 500 and get the advantage of long term equity investment.
Perfect for the Newbie’s: If you are a beginner in investment, then mutual funds are the most recommended means of investing your hard-earned money. While you can start off with a very minimum cost, it ensures a gradual growth in your investment. As the funds are being invested in diversified forms of revenue generated sources such as stocks, bonds and other securities, you are most likely to reap greater benefits as compared to other investment plans.
Easy Buy & Sell: There are wide options of investment in mutual funds. Starting from banks to financial planning firms to investment firms and credit unions, you can invest in mutual funds through any avenues you want. Also, there is no limitation on time for selling off the invested money. In fact, any time is a good time to sell your funds. However, you might get lesser amount in return than what you had invested.
Professional Aid: Doesn’t matter if you do not have sufficient investment knowledge and skill. You can take help from your portfolio managers while taking decisions on investments. The latter will in fact, consult you and decide where and when you should invest your money in the funds, and when you should buy and sell the investments. They will choose to invest after analysing the figures and possibility of profit growth in order to facilitate you with a long term benefit.