5 Reasons to Invest in Mutual Funds

While considering investment in the mutual funds or equities, one usually hesitates to invest due to the lack of information thereby assuming it to be too complex. However, what you need to know is that when you invest in MFs, your money, along with that of other investors, is put into various investment vehicles, such as money market instruments, stocks, bonds and securities. A fund manager is responsible for looking after these investments, in order to ensure that investors get the best possible returns.

Types of MFs:

There are basically four types of MFs that you can choose from:

1.      Equity – which invests only in stocks

2.      Debt – which invests in fixed income securities

3.      Money Market – which invests in short term instruments, such as government securities

4.      Balanced – which invests in equity and debt, to bring you the best of both worlds, meaning a balance between risk and reward.

Investing in MFs can be very beneficial. Here are five reasons why.

1.     Professional Management and Guidance

A qualified portfolio manager is in charge of each mutual fund. S/he is backed by a qualified research team so that investors can gain from the experience and expertise of knowledgeable fund managers. The manager is responsible for deciding where the money should be invested such that the best returns can be targeted, while keeping risks as low as possible.

2.     Provides a Shield in Times of Inflation

The fund managers assess various options to ensure that your money is invested in a way that you receive inflation-adjusted returns. This is one thing that the money in your savings account or even in fixed deposits might not be able to give you.

3.     Liquidity

Compared to a fixed deposit, these funds are very liquid. Unlike FDs, MFs have no penalty on withdrawing the capital early. However, some MFs have an exit load, meaning that you can withdraw after a specific period of time. This is actually done to help you remain invested for a good enough period to gain returns.

4.     Convenient

Since we live in a tech savvy world, where the internet has taken over, online services have also enhanced mutual fund investments. Investors not have the choice of making transactions online, which makes choosing, investing and tracking and even withdrawing your investments very convenient. Further, introduction of features like Systematic Investment Plan calculator or the Goal calculator, etc., allow you to understand your requirements for investment better.

5.     Higher Return

Based on the term of investment, MFs can generate higher returns, as compared to many other investment options. This is because your money is invested across a range of diverse sectors and instruments.

Another key advantage is that you can easily transfer money from one fund to another. As your investment grows and your risk appetite increases, you can look for schemes that offer higher rewards, although they might entail higher risks.