Seven Wonders of Mutual Fund
Written on Saturday, September 2, 2017
By Viswajeet Parashar - Senior V.P and Group Head - Marketing
For most of us, the cycle of money revolves around Earning, Spending, and Saving. However, nowadays, people have realized the importance of investing as well and thus have incorporated it into their money cycle. When you open up to investing, certainly there are a plethora of options for you, and mutual fund is one of the much talked options. Each investment product is crowned with its own set of benefits, and so does mutual fund.
In fact, if you examine closely, then mutual fund investments have really strong points to convince you with its wealth creation potential. No doubt, it is market-linked and thus the element of risk is embedded in its very concept, but there are seven wonders of mutual fund that will motivate you to see it in a different light.
1. Potential of Higher Returns: Return on investment is the prime concern of each and every investor. The concept of guaranteed returns is tempting because it guarantees what will you get back. However, usually guaranteed returns are low in the sense that these are not inflation beating in the long run. For instance, if a financial product is offering you 8% guaranteed return, and you adjust the average 6% inflation against it then the real return is just 2%. When the goal is long term investment, mutual funds have the potential to offer inflation beating returns. Thus, you should definitely make mutual funds a part of your wealth building portfolio along with other financial products that offer guaranteed returns such as PF, EPF, etc.
2. Professionally Managed: Mutual funds are managed by professional fund managers, now how does that help? It helps because it ensures that someone who understands market trends and intricacies is throughout managing your investments with the goal of making it grow. Their job is to analyze the performance of various companies, identify the winning stocks, decide when to buy and when to sell. Also, mutual funds are governed by a well structured regulatory body named SEBI. So as an investor, your role is only to put money, rest it is the responsibility of the fund managers to put stringent efforts and give you returns.
3. Diversification: Many question mutual funds because of the work 'Risk.' The element of risk gets reduced because of the feature called 'Diversification.' Mutual Fund allows a variety of diversification, like diversification among different stocks, diversification among various sectors, styles as well as types of assets such as cash, bonds, commodities, like gold. Thereby, before selecting an MF fund, you must see how diversified its investment pattern is.
4. Transparent: Mutual fund returns largely depend on one thing, I.e the performance of the fund. No now can cheat you on that grounds because the performance of a mutual fund is a matter of public record. You can anytime track it and if found that your fund has not performed good for long and your money is not earning profits, then you can anytime switch or redeem your investment.
5. Tax Friendly: Another major advantage of Mutual Fund is its tax benefits. If you want to save tax while investing, then you have the Equity Linked Saving Schemes (ELSS) that gives you tax benefits under Section 80C of Income Tax Act, 1961. If you want to save tax on your returns then also, mutual funds are tax friendly. Capital gains from equity fund investments held for more than 1 years are tax-free and capital gains from debt fund investments are taxed flat at 20% with indexation benefit.
6. Easy to Start: If you think that MF investment is possible only if you have a lump sum money, then you will be delighted to know that you can start with as small as Rs. 500 by taking up the Systematic Investment Planning (SIP) route. In fact, SIP is a better way of investing in a mutual fund scheme as it gives your money the benefit of Rupee Cost Averaging.
7. Liquidity: In MF investment, you have the option to choose open-ended or close-ended schemes. If you choose an open ended fund, then you have the full liquidity to exit from the scheme whenever you want and there is no or minimal exit load. Exit load is almost nil for the open ended funds held for at least 1 year.
Investing is like taking a leap ahead of 'Saving.' Saving does very little to make your money compound Thus, wealth creation is a slow process for those who are limited to the practice of saving only. However, 'investing' works as a catalyst and can substantially provide momentum to the compounding power of your money. When the talk is about investment, try out Mutual Fund, you will like it.