There are multiple reasons as to why you should opt for mutual funds investment. Let us discuss today some of the very important reasons –
Customized solutions for various investment needs:
One of the primary reasons for mutual fund investment is that it offers products for your various investment needs. You may have investment need for few days to few months to many years, but all this can be fulfilled by selecting the appropriate products.
Let us see example of few fund categories and how they can be useful for different investment needs of people -
Liquid funds – investment needs of few days to a few months
Short term debt funds – investment needs of few months to few years
Income Funds and hybrid funds – investment need of 3 years and above
Equity and hybrid aggressive funds – for meeting long term investment needs of 4-5 years and above
ELSS Funds – for savings taxes under Section 80C of the Income Tax Act 1961
Products which suit your risk profile
The other important reason for mutual fund investment is that you can select schemes based on your risk taking appetite. While investing in a fund you can refer to the Fund Riskometer which clearly shows the risk attached with investing in it.
Following could be some suggested category of funds based on risk profile –
Low risk –Liquid funds, Ultra Short-Term Funds and Overnight Funds etc.
Moderately low risk - Short Term Funds and Medium Term Funds etc.
Moderate risk – Income Fund and Hybrid Debt Funds
Moderately high risk – Equity Savings Funds, Hybrid Aggressive Funds and Large Cap Funds
High risk – Multi-Cap Funds, Mid Cap Funds, Small Cap Funds and Sectoral/ Thematic Funds
Did you know how you should select mutual fund schemes
Selection of securities, either debt or equities is a complex task which requires careful analysis of different factors like capital structure of the company, financial performance, financial risks, competition, industry growth and many other factors. Asset Management Companies (AMC) have teams of research analysts who have the necessary experience and expertise to analyze these complex factors. Each mutual fund scheme is helmed by a fund manager(s) supported by the team of analysts. Mutual fund investors can benefit from the experience and expertise of the fund management team and get better returns on their mutual fund investment.
When you invest directly in stocks, you are exposed to company risk, sector risk and the market risk. By investing in a diversified portfolio of stocks across different sectors, and various kinds of debt instruments, you are able to diversify specific risks related to sector risk, interest risk etc. upto to a large extent. Significant investment is required to build a diversified portfolio of equity and fixed income. Since mutual funds work on the concept of pooling of money, mutual fund investors can achieve risk diversification with a much smaller investment in equity, debt and hybrid funds.
In the earlier days, our mothers would keep these little savings in an envelope or their jewellery boxes or cupboard drawers for the rainy day. One hears of stories where these little savings accumulated over the years helped families tide over emergency financial needs or buy jewellery for children’s weddings etc.
Did you know what is SIP and how it can help plan your goals
Mutual Fund systematic investment plan offers a convenient mechanism of investing small amounts of money every month to build a corpus for your future financial needs.
Did you know the 6 things before starting a mutual fund systematic investment plan
From taxation point of view mutual funds investment is classified into two groups – Equity and non-equity. Equity, as an asset class, enjoys significant tax advantages compared to other asset classes. Long term (investments held for more than 12 months) capital gains from equity mutual funds are taxed at 10% if your total long term capital gains is Rs 1 Lakh in a financial year. Short term (investments held for less than 12 months) capital gains are taxed at only 15%.
On the other hand non-equity mutual funds, enjoy significant tax advantages compared to fixed income products. Long term (investments held for more than 36 months) capital gains from non-equity mutual funds are taxed at 20% after allowing indexation benefit. Short term (investments held for less than 36 months) capital gains are added to the income of the investor and taxed at the tax rate applicable to the investor.
Suggested reading: Did you know all about tax benefits of mutual funds in India