Advantages of Investing in Mutual Funds

Mutual funds are one of the more rewarding investments available in India. They invest in a variety of financial instruments, such that there is just the right combination for every type of investor, risk appetite and financial goal. No wonder they have been gaining such popularity. This is reflected in the figures released by the Association of Mutual Funds in India, which reveal that the average Assets Under Management (AAUM) for August 2021 stood at a whopping ₹36,09,471 crores for the Indian mutual fund industry.

If you’re still unsure whether this is the right investment for you, take a look at the key advantages of mutual funds.

1. Diversification

Mutual funds invest your money in a diversified manner. This means that with a single investment, you gain exposure to a variety of assets. For instance, ELSS funds in India invest in equities across a wide range of sectors, so that even if one sector underperforms, the outperformance of other sectors makes up for it. This is a great way to manage risks.

2. Liquidity

Unlike other investment instruments, mutual funds are very flexible. They allow you to make part withdrawals of your funds. However, make sure to learn more about the withdrawal policy of your chosen mutual fund scheme before you invest.

3. Expert Funds Management

With such schemes, you don’t need to have expert knowledge of the financial markets to grow your wealth. The funds are managed by experienced and qualified fund managers who are responsible for choosing where and when to invest so that investors can get the best returns.

4. Ease of Investing

Mutual funds are very easy to invest in too. You can either invest a lump sum or choose to go the SIP route, where you can start investing with as little as ₹500 and then make regular investments. You can always increase the investment amount whenever you are able to. Remember to stay invested for the long term to gain the maximum benefits.

5. Safety and Transparency

The introduction of SEBI guidelines have made investing in mutual funds more transparent and safe. These guidelines have classified all mutual fund products into three risk-based categories, each highlighted by a different colour. While the colour blue indicates low-risk, yellow indicates medium-risk and brown signals high-risk.

6. Ease of Tracking

Another advantage of investing in mutual funds is that it's very easy to track progress. The fund companies understand that it is difficult for investors to take time out to keep checking up on their investment status. Therefore, they provide investment statements at regular intervals to keep investors updated.

Mutual funds can be a good way to build a corpus and fulfill your financial goals. Understanding of how they work can help you make an informed decision and earn good rewards. Moreover, it can also help you get tax benefits under the section 80C of the Income Tax Act. This way, you get to save while building wealth.