Before we delve deeper into the advantages of mutual funds and how relevant they are to your investment goals, let’s first look at what mutual funds are.
Mutual funds are basically an investment program. The best thing about this financial scheme is that it is professionally managed and is operated by companies with a dedicated role of asset management. What such a company does is brings a group of investors together and invest their funds in bonds, stocks, and other securities. Mutual funds, by virtue of their well-regulated structure, can help your funds get directed to the right asset class in an economic manner. And this is not the only benefit mutual funds offer; there is a host of other benefits too. Read on to find out-
- High liquidity– Mutual funds offer amazing liquidity to investors. Except in cases of pre-specified lock-ins, investors have access to their money at all times. This is an amazing benefit as far as emergencies are concerned. Yes, urgencies of any kind-be it a medical urgency or a financial crisis- can leave you helpless. But with sufficient funds at your disposal, warding off such problems gets easy. Unlike fixed deposits, where your money gets locked up for a considerable amount of time, mutual funds give you the freedom to redeem funds as and when required.
- High profits counterbalance the effects of risks- A lot of people, especially those from the older lot, believe in investing in less risky investment vehicles such as fixed deposits. Their concerns, no doubt, are reasonable. But risk aversion has always caused their returns to be low. If you want high returns, risking your funds to some extent isn’t an extremely bad idea. Mutual funds, indeed, are thought to be habitually risky. But in reality, the level of risks depends on the investment term. The longer the term, the lower the risks. Hence, when you invest in a mutual fund, you get a balanced equation of risks and returns.
- Varied investment term options– If you are thinking of investing in mutual funds, you probably first want to know about the investment term you would be required to opt for. Actually, there are no rigid term offerings. You can choose the term based on your financial goals. If you intend to fulfill some short term goals, go for short term investments. However, if your dreams are distant for retirement and children’s higher education, opting for a long term mutual fund investment would be the best bet. There are ultra short term investments as well; they are profitable and are meant to fulfill your near future goals.
- Start low– So, you don’t have the fortune to invest. Yes, doing so will definitely offer you eye-popping returns, but you are bound to start slow. Now, does that mean you can’t take advantage of mutual funds? Not at all! Mutual funds are incredibly flexible- in many ways. And one of those ways is allowing investors to start low. You can start investing in a mutual fund with an amount as low as Rs. 500. Now, isn’t that a big hook for investors, specifically those belonging to the medium and low-income strata or those who don’t want to put a lot of money at risk? Of course!
Now, these are some of the reasons that will definitely make you say ‘yes’ to mutual funds. We heard you exclaim, “Mutual Funds Sahi Hai!”