7 reasons to invest in Mutual Funds

A mutual fund pools in money from various investors and invests it in various types of underlying securities. They prove to be a great investment tool for growing ones’ wealth. Irrespective of your risk appetite and investment horizon, there is a mutual fund for everyone. However, investing in mutual funds for the wrong reasons can result in a bad investment.

So, here are seven reasons to invest in mutual funds.

1. You can start small:

You can start investing in mutual funds with as little as INR 100. Even if you don't have a sizeable chunk of money for investment, you can still start your investment journey through SIPs. Not only will this ensure significant returns but will also help instill the habit of investing.

2. You don’t need to manage everything yourself:

If you thought investing in mutual funds requires you to manage everything on your own; then you’re wrong. Professional fund managers are the ones who manage mutual funds. They analyze the performance of various securities in the market and decide which security should be bought or sold. Once you put in your investment amount, you don't have to think about how further investments are made with the pooled in money.

3. You don’t have to worry about the safety of a mutual fund:

The Securities and Exchange Board of India (SEBI) strictly regulates mutual funds. Every mutual fund has to obtain a SEBI registration before launching any scheme in the market. So, you do not need to worry about  fund house disappearing with your money. However, standard risks associated with equities and debt apply for MFs as well.

4. You can enjoy tax benefits:

Who doesn’t like to save on taxes? Equity mutual fund schemes such as Equity Linked Saving Scheme (ELSS) offer a deduction up to Rs. 1.5 lakh in a financial year under Section 80C of the Income Tax act. ELSS is an equity mutual fund that invests in the shares of different companies. You don't have to pay any tax on the capital gains on units of an equity mutual fund held for more than one year, if gains are less than one lakh in a financial year.

5. You can enjoy instant liquidity:

If you face an unexpected financial crisis or the mutual fund scheme is underperforming, you can redeem the mutual fund units. You will receive the redemption amount in the linked bank account usually within one to three working days, depending on the type of mutual funds.

6. It helps diversify your investments:

Investing the entire corpus in a single asset or security can be risky. Mutual Funds allow you to diversify your investments by investing in different asset classes and securities. Therefore, even if the market crashes, your risk can be minimized to a large extent.

7. You can review the past performance before investing:

Historical performances can help you know how a fund has fared so far. You can use the information to locate a fund that has a lower risk profile but offers good returns. But do remember that the past performance cannot be a guarantee for future performance.

Mutual funds have become a household name when it comes to personal finance. There are several types of mutual fund schemes in the market that are tailored to suit your requirements. So, kick start your investment journey today and unlock the world of mutual funds.