HomeMutual Fund5 Sign You Should Invest in Mutual Fund

5 Sign You Should Invest in Mutual Fund

The frenzy on Dalal Street has been quite unprecedented over the past year. But unfortunately, not everyone can participate and there are numerous reasons for that. Although as an individual one wants to start investing in the stock market there is a lack of;

  • Knowledge
  • Time
  • Expertise
  • Awareness
  • Understanding of risk

However, there is an efficient and simple way to start investing in the stock market, The Mutual Funds.

What is a Mutual Fund?

Essentially a mutual fund is a fund collected by an Asset Management Company (AMC) that invests in a diversified portfolio of securities which includes both equity and debt. The individuals who invest in the units of a mutual fund are known as its unit holders. From the money/ investments of an individual, the mutual fund buys shares and bonds from the market.

  • A mutual fund is floated by an Asset Management Company in which many individual investors, who share a common financial goal, accumulate or pool their savings in that particular fund.
  • Any individual who has surplus money or savings can invest in a mutual fund as long as he or she has the required KYC documents; viz; PAN Card,  Adhaar Card, and Bank account.
  • The Asset Management Company (AMC) appoints professionals known as Fund Managers (FMs) or Portfolio Managers (PMs). These professionals then invest the funds in various Equity and Debt securities as per the mandate of the scheme.
  • One needs to always keep in mind that these investments are subject to market risk at all times. Since these investments are market links, there are no guarantees or assurance of returns. In case of adverse market movement, the investment can also see negative returns.
  • Although the returns are market-linked, historically, the trend has shown that anyone with a long-term horizon of, returns has the potential to perform better than other assured return products like FDs.

How Investing Mutual Fund Works?

How Investing Mutual Fund Works
How Investing Mutual Fund Works

5 Benefits of Investing in Mutual Fund

1. Offers Professional Investment Approach

All the mutual fund schemes are run by professional fund managers who bring in their knowledge and expertise in managing funds. These fund managers essentially decide on investments and when to Buy & Sell investments.

Due to a lack of knowledge, time, and limited understanding, an individual will be always better off by making use of professional fund managers to manage their funds.

2. Offers Diversification

The fund manager of the mutual funds invests in a diverse portfolio of stocks and bonds from the pool of funds that the mutual funds have accumulated from investors. As it is said “ Do not keep all your eggs in one basket”, this diversification always helps an individual investor as holding a variety of investments helps offset the poor performance of some of the investments.

As an individual one may not have the knowledge and expertise to handle a diversified portfolio.

3. Offer a Simple Way to Participate in Investing in the Stock market

Subscribing to any mutual fund scheme that meets his or her investment objectives is a simple process. With technology and smartphones now it’s even easier to buy and sell mutual funds. One can buy the units of any scheme at prevailing Net Asset Value (NAV) and redeem/ sell at any time he or she wishes to depending on the performance of the scheme or return on the investment.

4. Makes Your Investment More Discipline

Once an individual is committed to participating in the stock market, one can become more disciplined in their approach. As all these investments are essentially long-term horizons, they help an individual to make and accomplish his or her financial goals.

5. Helps You in Tax Planning

Since there are certain Tax benefits available under section 80C of the Income Tax Act, an individual can certainly take advantage of this to reduce his or her tax liability. Investments in ELSS schemes of mutual funds qualify for deduction under Sec. 80C.

However, the above five are not exhaustive. Investment in mutual funds helps an individual in many ways.

Investment in mutual funds
Investment in mutual funds

Types of Mutual Funds

Types of Mutual Funds
Types of Mutual Funds

Also Read: Top 5 SIP Equity Mutual Funds to Invest

1. How to Make Investment in Mutual Funds?

How to Make Investment in Mutual Funds
How to Make Investment in Mutual Funds

2. Illustration of How a Disciplined Investment in Mutual Fund by Way of SIP Works

How a Disciplined Investment in Mutual Fund
How a Disciplined Investment in Mutual Fund

3. Taxation Impact on Mutual Fund (as of FY 2017-18)

Taxation Impact on Mutual Fund

 

Taxation Impact on Mutual Fund

Some Important Terms One Needs to Know in Mutual Fund

Important Terms in Mutual Fund

Important Terms in Mutual Fund

FinanceGAB
FinanceGABhttps://www.financegab.com/
Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.

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