Not much surprisingly, the popularity of mutual funds is growing with time. People, who religiously invest in mutual funds, understand how beneficial they are for realising long-term financial goals. But a lot of people still don’t know about the myriad benefits investing in mutual funds can offer. A section of people even goes on to associate all kinds of mutual funds with high risks. Not just this, there are many more cases of misconceptions. To bust all myths linked to mutual funds and to create awareness among people, we have dished out some of the most important benefits of investing in mutual funds here-
There are different assets in the market like real estate, gold, debt and equity. And each of these asset classes has sub categories under it. Different mutual fund schemes attach importance to these asset classes differently in different amounts. And that is why when you opt for a mutual fund, you expose yourself to a variety of these asset classes and the sub categories under them.
Management is done professionally-
Making investments in direct stocks rather than in mutual funds might look more glamorous. But it’s always wise to make mutual fund investment rather than opting for direct stocks. Why? Because mutual funds are professionally managed by fund managers, who with their knowledge and expertise park your money in the right asset classes.
You invest in a diversified portfolio-
In mutual funds, money of the investors is not parked in one company or sector, which is why when the performance of one particular company or sector dips, the investors don’t lose all their money. Dip in one company or sector often gets balanced out by a rise in another company or sector. By maintaining a diversified portfolio for their investors, mutual funds help them grow their capital over time.
Meets a range of financial goals-
Mutual funds are ideal for a wide variety of investors with different risk appetites and financial goals. While long term financial goals are best met with equity funds, balanced funds are ideal for people having moderate risk appetite and wanting to fulfil long term financial goals. For medium term financial goals, long term debt funds are perfect. And short-term debt funds efficiently meet short term financial goals.
One of the main reasons why mutual funds have been able to outdo many traditional investment options is that they offer tax benefits. Investments held over 12 months are tax free. Even investments in equity mutual funds are exempted from taxation. There are other mutual fund instruments too that are not subject to taxation. So, if you want to look at mutual fund investments as tax saving investments, you can do so. The tax exemption is offered under section 80 C of the Income Tax Act, 1961.
No matter what kind of financial goals (long term, short term or medium term) you have, you can fulfil them with the help of mutual funds. And that is probably the reason why financial experts recommend them for all kinds of retail investors.