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Are you seeking ways to create wealth while minimizing risk and maximizing tax savings? Look no further! This blog will explain why investing in mutual funds is essential for building long-term wealth.
But first, let’s understand what mutual funds are. Many of you have read or seen the ad for Mutual funds that are subject to market risk; read all scheme-related documents carefully, but you still need to learn about mutual funds. Mutual funds are a kind of investment where several investors invest their money into different financial instruments that share a common investment objective and are managed by professionals.
Investing in a mutual fund is beneficial because it provides you with the option of a lump sum or a SIP. But many people are in a dilemma about what to select, Lump sum or SIP. Lump sum investment means investing an entire amount at once, and SIP (Systematic Investment amount) means you can invest a particular fixed amount weekly, monthly, quarterly, and half-yearly. The dilemma is which should I choose, lump sum or SIP? It depends on the individual’s goal, risk appetite, and financial and market conditions. If you are uncomfortable with taking on more significant risks, it is recommended to invest through SIP.
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Mutual Fund investment also comes with the benefit of tax advantages. If you want to save tax, then investing in an ELSS (Equity-linked savings scheme) mutual fund is the best option; you can reduce your taxable income by as much as ₹1.5 lakhs under Section 80C of the Income Tax Act – 1961, which helps you save ₹46,800 a year in taxes. Also, the Equity-linked savings scheme (ELSS) comes with a lock-in period of 3 years.
In mutual funds, various products are available for different types of people. There are currently 2500+ active schemes where you can find a fund that suits your financial goals, risk appetite, and current financial situation. Whether you’re saving up for your child’s education, preparing for a health emergency, planning for retirement, or other short- and long-term goals, mutual funds can help. With proper financial planning, anyone can start investing towards their financial goals, big or small. Investors can select different investment options like SIP (Systematic investment option), SWP (Systematic Withdrawal Plan) and STP (Systematic Transfer Plan)
You can start with a small amount when investing in a mutual fund. By starting a SIP (Systematic Investment Plan), you can continue to invest small amounts regularly. One of the advantages of SIP is that you can purchase more units when the market is down, compared to a lump sum investment with more risk involved.
One of the reasons people don’t start their investment journey is a lack of knowledge because to invest in stocks and a bond person should have proper market knowledge, time and research, but mutual funds are managed by experts who can manage the risk in the best way. If you need proper guidance to start your investment journey, then you can connect with a financial advisor who can guide you and give you adequate direction towards financial planning.
One advantage of mutual funds is diversification; diversification is the strategy to reduce risk. Mutual funds invest in various asset classes like debt, equity and hybrid and due to that, investment risks get diversified, and chances of getting loss decrease. Additionally, each type has unique objectives; equity help in wealth creation, debt mutual funds generate income, and Hybrid funds are investments that involve both equity and debt.
SWP is a facility that enables investors to withdraw a fixed amount from their mutual fund scheme. You can select the amount on the withdrawal period. The units will be sold on the specified date, and the funds will be transferred to your account.
Another advantage of investing in mutual funds is transparency. Mutual funds provide daily updates on the market value of mutual fund units, the amount invested in the scheme, and monthly fact sheets. This information includes each fund’s returns, benchmarks, risk ratio, etc. The fund manager publishes these updates.
So here we have discussed the Reasons why you should invest in mutual funds. So, if you want to plan your retirement with expert guidance, contact any financial advisor.