Investor Trends: Mutual Fund Investment is Growing as the Preferred Choice
Written on Monday, February 20, 2017
By Mitali Sharma
There was a time, not many years back when investors used to remain comfortable with their fixed deposits, and not give much heed to the investment suggestions related to Mutual Funds. " Mutual funds are risky"- this used to be the general view, but things have significantly changed, all thanks to the growing investors' awareness.
Now, investors are no longer hesitant or afraid of mutual funds, they have started seeing it as a high-potential route of investment to create wealth and beat inflation in comparison to other asset classes.
Mutual Funds (MF): Numbers Showing Increased Investment Inflow
The change in investors' outlook toward mutual funds has started reflecting in numbers. To go by the latest data recorded in December'2016, Assets Under Management (AUM) under Mutual Fund industry has touched an all-time high of Rs 16.46 lakh Crores- Data from Association of Mutual Funds in India (AMFI). It is been expected that by the end of this year, the AUM will cross Rs 20 Lakh Crore.
Also, as per the data from Central Depository Services and National Securities Depository, in the year 2016, 2.4 million dematerialised (Demat) new accounts got opened in India, highest since the 2008 financial crisis. For an investor, opening a Demat account is mandatory, if he wishes to invest in securities. Based on the Demat accounts, securities are held in a digital format, unlike earlier where securities were held in physical form.
The data mentioned above, highlights the investors growing interest in Mutual funds. However, based on an investor's investment horizon and goals, he has the option of choosing across various asset classes under Mutual funds. Following are some of the most popular asset classes or types of mutual funds:
- Equity/ Growth Funds: It invests in equities
- Debt Funds/ Fixed Income Funds: It invests in debt / fixed income securities like corporate bonds, government securities, debentures, commercial papers, etc.
- Gilt Funds: It invests in Central and State Government securities
- Balanced Funds: It invests both in debt (fixed income) instruments and equity shares
- Sector Funds: It invests in equity shares of companies pertaining to a particular business sector.
Equity and Debt funds are more popular among investors. In fact, Equity Linked Savings Scheme (ELSS), is one of the prime reasons that have contributed towards making Mutual Funds so popular among investors.
Equity Linked Savings Scheme - A Tax Saving Mutual Fund Investment Product
Equity Linked Savings Scheme (ELSS) also invests in equities but it is also eligible for a tax-saving investment and has helped many investors in receiving handsome returns. Under the Section 80 C of Income Tax Act, ELSS can help you save tax up to Rs. 46,350 on investing up to Rs 1,50,000 per financial year. Section 80 C has specified various tax-saving investment products such as PPF, NSC, etc. But ELSS has become a preferable option because it offers long-term investment option and that too with the shortest lock-in period (only 3 years) among rest other tax-saving investments.
And most importantly, even ELSS capital gains are tax-free, if held for more than one year. All these features of ELSS, make it a perfect tax-saving investment product with the potential of wealth creation.