Investment preferences of Indians have evolved over the years. Today, most retail investors in India have shifted their focus on mutual funds to earn higher, inflation-beating returns. As versatile investment avenues, Mutual funds offer prudent investment options for investors with varying needs and risk profiles. If you’re still Uncertain about MFs, this article will help you understand why you should invest in mutual funds.

Here’s a list of reasons why you should invest in mutual funds:

Diversification of portfolio

Diversification is the cornerstone of wealth creation and risk mitigation. One of the primary reasons to invest in mutual funds is the instant diversification benefit they offer. Mutual funds are inherently diversified because no fund invests in just one stock or bond. Instead, each mutual fund scheme invests in a basket of assets and securities. Therefore, investing in mutual funds allows you to leverage the diversification benefit at once. Adding MFs to your investment portfolio helps you hedge risk and maximise returns.

Liquidity benefits

Mutual fund investments offer benefits of easy liquidity to the investor. In fact, open-ended MFs are the second most liquid investment instrument after bank FDs. Therefore, you can easily redeem your investment to meet urgent cash flow requirements at any time. In fact, investing in liquid mutual funds allows you to access your corpus in just 1 day.

Convenient contribution modes

Contribution convenience is yet another reason why you should start investing in mutual funds. Mutual funds offer the option of depositing a one-time corpus into a single mutual fund scheme or opt for regular and fixed deposits at periodic intervals. The former is called lump-sum investing while the latter refers to SIPs or systematic investment plans. The lump-sum route is preferred by investors with a large corpus like a windfall gain or annual bonus. But it also involves accurately timing the market. SIPs, on the other hand, are preferred by most investors since they allow for piecemeal contributions, offer rupee-cost averaging benefits, and freedom from market timing.

Tax benefits

Tax efficiency is another common benefit of mutual funds. Investing in ELSS or equity-linked savings schemes entitled you to a tax deduction of up to Rs. 1.5 Lakhs annually. Additionally, investing in equity funds for the long-term duration helps you lower your tax liabilities as well. Capital gains from equity funds are taxed at 12.5% when sold after 1 year. This makes them good investment options, especially for those belonging to a high income tax bracket.

Low costs

Another reason why you should invest in mutual funds is the cost advantage they bring to the table. Investing in stocks directly involves various costs and charges like brokerage fees, transaction costs, and STT (Securities Transaction Tax). For MF investments, you need to pay an annual expense fee to the AMC which generally ranges from 0.5%-2.5%. You can compare mutual funds and select schemes that have the lowest expense ratios to save more.

Small minimum investment

The small minimum investment benefit of mutual funds makes them one of the best investment avenues for small investors. If you’re investing in equities directly, you will need a sizable corpus to build a diversified portfolio. However, you can curate a diversified portfolio with a much smaller investment in mutual funds. Since MFs operate by pooling money from different investors, you can easily invest in different assets and sectors with as little as Rs. 500 a month!

Versatile investment options

Mutual funds are some of the most versatile investment options available in the market. Investors with a high risk appetite can choose equity funds that invest in company stocks to earn potentially high returns. Those with a low risk appetite can choose debt funds that invest in fixed-income securities like bonds and debentures for stable returns and capital protection. Alternatively, investors seeking moderate returns can otp for hybrid funds that allocate resources to both equities and debt instruments for a balanced approach. In other words, investors with varying risk appetites, goals, and horizons can invest in mutual funds to achieve their objectives. This versatility is another reason why you should invest in mutual funds.

Professional management

Lastly, mutual funds offer the benefit of professional fund management. Investing in equities directly requires thorough market knowledge and experience. Without accurate market expertise, you can incur significant losses in the financial markets. However, when investing through mutual funds, you can leverage the benefit of professional management. Each mutual fund scheme is managed by a competent and experienced fund manager. The fund manager uses his knowledge of market trends and sectors to make informed investment choices on behalf of the investors. In simple words, you contribute the capital to MF schemes, while the AMC’s research team takes care of the asset selection and allocation process.

We’ve covered all the reasons why you should start investing in mutual funds. From diversifying your portfolio and leveraging professional expertise to enjoying liquidity and tax benefits, mutual fund investments offer a range of benefits to investors. Remember the key is to start early and select funds that best align with your goals, horizon, and risk profile.

Now that you know all the reasons why you should start investing in mutual funds, it’s time to begin your journey with the Bajaj Finserv Mutual Fund Platform. This smart platform allows you to start MF investments with a small contribution of just Rs. 100 in SIPs. Additionally, you get to browse through hundreds of MF schemes to select the perfect match and compute returns using the Mutual Fund Calculator tool.

• Mutual funds offer built-in diversification benefits to hedge against unsystematic risks.
• Investors can conveniently contribute via SIP or lump-sum modes, helping them grow wealth at a low cost.
• Liquidity benefits, tax advantages, and professional management are some prominent perks of mutual fund investments.