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Benefits Of Investing In Mutual Funds

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Benefits Of Investing In Mutual Funds

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Mutual Funds Sahi Hai" This tagline has now become a common catchphrase! That goes to show the meteoric rise of Mutual Funds (MF) as the investment tool of choice for Indians. If you want to wrap your head around the benefits of investing in mutual funds, then here are some mind-boggling stats by the Association Of Mutual Funds In India:

a. Total number of retail MF accounts: 13.8 Cr as of Oct '22

b. Total Assets Under Management (AUM): ₹39.5L crore as of Oct '22

c. Total Monthly SIP: ₹13,041 Cr with over ₹5.93 Cr SIP accounts in Oct '22

Clearly, there are several benefits of investing in mutual funds which is why such a large and diverse group of Indians are interested in it. So, let’s take a look at some of the prominent ones.

Convenience - Buy from anywhere & track anytime

The modern Indian rates convenience very highly. They are ready to pay premiums for services that save them time and effort. Just take a quick glance at your phone, and you will see a variety of apps to prove the point.

Mutual Funds let you easily invest through the internet. You can choose to invest directly through a fund house or one of the several intermediaries, facilitators, and brokers. The benefit of investing in mutual funds is that the entire setup is primarily web-based & readily accessible via portals or mobile apps. The payment options, too, range from Net-banking, IMPS transfer, and Auto-debit mandates to UPI transfer. Typically, you’re all set if you have a PAN Card and a linked Bank Account. There is no need for a Demat account either.

The convenience also stems from the fact that, unlike stocks and shares, most Mutual Funds are managed by qualified fund managers who regularly rebalance the fund’s portfolio as per market trends. It means you do not have to monitor and track your fund’s performance constantly, something that most people do not have the time for and abhor doing.

Flexibility - Invest when & how much you like

Apart from convenience, the flexibility of investing is a significant reason for the immense popularity of MFs. If you have a sudden windfall, say a Diwali bonus, you can invest in an MF as a lump sum. What about regular savings, though? You can regularly contribute to your investment corpus using the Systematic Investment Plan (SIP) at your convenience.

SIPs can be started with as low as ₹100 per month and are a great way of developing a disciplined investment regimen. To visualise the power of compounding, use Fi's online MF returns calculator, enter a reasonable monthly SIP amount and see how much the final amount you can get in 10, 15, or 20 years.

Invest in commission-free Mutual Funds on Fi Money

Diversification - Many eggs, many baskets

Markets are rarely predictable. Different asset classes tend to perform differently under the same market conditions. For example, it is not uncommon to see gold prices going up during periods of high inflation. To some, diversification is the numero uno benefit of investing in mutual funds as it reduces the impact of this volatility. The fancy term is ‘hedging your portfolio’ ,but it pretty much means don’t put all your eggs in the same basket. 

Through their various asset classes, mutual funds provide the simplest way to diversify your portfolio and distribute your risk. You can opt to invest in equities while also investing in debt funds, government bonds, or even commodities like gold. The application process is the same, and no additional effort is needed from your side. A good rule of diversification for building long-term wealth is 80:20 - 80% equity exposure with 20% debt and low-risk bonds in your kitty.

Tax benefits - Earn more, save more

It is natural for your eyeballs to leap out of their sockets at the mention of tax benefits. Equity Linked Savings Scheme (ELSS) is a type of mutual fund that offers equity exposure while also providing tax benefits. Word!
These funds are historically known to provide higher returns than traditional tax-saving instruments like PPF, with a far lower lock-in period, which stands at three years.

Under Sec 80 C of the Income Tax Act of India, contributions to such funds are tax-deductible. The limit for this is up to ₹1.5 Lakh per annum. It does not have to be the same fund either. You can invest, say, ₹50,000 in 3 ELSS funds each year, and the aggregate will qualify for tax exemption.

While this benefit is for investment amounts, you can also benefit through the Long Term Capital Gains (LTCG), which are applicable when you claim your returns. Check all the tax implications before investing & get the most benefit from your fund.

Liquidity & other benefits of investing in mutual funds

a. Liquidity 

Mutual Funds are easily redeemable anytime with negligible paperwork. However, a word of caution. Do note conditions such as pre-exit penalty and exit load before choosing the investment scheme.

b. Goal-Based Investing

MFs offer flexibility in choosing the amount to invest and the tenor. Different funds are available to help you achieve your various life goals. You may build a retirement fund or watch the next T20 World Cup. 

c. Risk Transparency 

The Securities and Exchange Board of India (SEBI) overlooks the investment scene in India. Everything runs per their regulations and guidelines. As per SEBI, all MFs are required to display the risk associated with investing in them. Their ‘risk-o-meter’ is a handy tool to compare mutual funds based on your risk appetite before investing in them.

Conclusion

With so many benefits of investing in mutual funds, it's easy to see why crores of Indians choose it as their preferred form of financing. So, are you excited to venture into the investment journey with MF? Then look no further than Fi Money which offers commission-free Mutual Fund investments.

Using the Auto-Invest FIT rules, you can conveniently choose an amount to invest automatically based on your criteria. This amount is then seamlessly moved into an MF of your choice, thus acting as a pseudo-SIP. 

Moreover, you can make a one-time lump sum investment in any 850+ funds (as of Oct '22) presently available on the Fi app. So, no more having multiple apps and accounts. Fi lets you save, earn, and invest by tapping the screen on a single app!

Frequently Asked Questions

1.What is the most important advantage of a mutual fund?

Mutual funds have several advantages. Besides having professional money managers monitor your investments, another aspect is the low fees charged by fund management houses — especially since many commission-free funds are available. Also, you can diversify your money into several asset classes to avoid significant losses. Instant liquidity, options for goal-based investing & risk transparency are other factors.

2. Are mutual funds better than stocks?

For one, you don’t need a Demat account to invest in Mutual Funds. You can sign up in minutes on money management apps like Fi Money & invest in commission-free Mutual Funds. Plus, mutual funds are super convenient. Unlike stocks and shares, most MFs are managed by qualified fund managers who regularly rebalance the fund’s portfolio as per market trends. It means you do not have to monitor and track your fund’s performance constantly, which most people do not have the time for, given other daily tasks.

Time to switch to Fi. Smart banking and only that.
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