Investing in Mutual funds – Why mutual funds should be your Priority #1?
Are you still confused whether investing in Mutual funds is the best choice? Here are some good reasons that can steer your decision.
Mutual funds may not sound cool like yourself investing directly in the stock market, but for many people, it is the best alternative way to achieve financial goals in life.
I have narrowed down to a few very important reasons which drive the message that mutual funds are the best investment choice.
Here are the top reasons why you should consider investing in mutual funds:
1. You do not have the time or the skills to be an Active Investor
Many may argue why this should be the top reason for investing in mutual funds.
But if you are a very busy person, with no time to spare on following the markets and inadequate knowledge and skills, there is no chance you can make any good returns even after several years of investing.
Investing in individual stocks requires considerable amount of time and resources.
Active Investors, fund managers and analyst dedicate their professional lives to researching and analyzing current and potential holdings every day.
So, if you fall in this category, investing in mutual funds is a better choice to fulfil your financial goals.
2. Mutual funds are a means of diversification
Owning a mutual fund over an individual stock is a good way to diversify your portfolio which you would not get investing small amounts of money in a few shares.
For example, if you have INR 10,000 to invest monthly, you can buy maybe 200 shares of five stocks. But when you buy a mutual fund, it may own 50 to 200 shares.
So, even if one or five shares depreciate its value, the entire fund would average its fall.
Your fund manager would make sure that the fund is not heavily exposed to any one share or sector.
3. Option and ease of low Systematic Investment Plan and Withdrawals
Many mutual fund companies allow investors SIP’s of as little as INR 500 per month.
Depending on your Investment budget, it becomes affordable to start participating in the markets immediately.
This eliminates the chance of cash to remaining idle in a savings account without any potential of real returns.
Also, as an investor, it can be an advantage as it would inculcate good habits like disciplined investing and an early start to your investing plans.
Additionally with the ease of net banking nowadays, your SIP can be directly link from a bank account to the mutual fund.
Also, if you wish for a WIP (withdrawal investment plan), it can be automatically withdrawn from a mutual fund into your bank account.
4. Mutual Funds are highly liquid
If money is required urgently, you can get cash from most mutual funds within a few days unless the said mutual fund is a close ended fund with certain lock in period.
Likewise, If you would want to sell your mutual fund, the proceeds from the sale are available within a few working days.
This type of liquidity is hard to find with other types of investment assets such as fixed deposits or Real estate.
6. Mutual Funds has variety of Investment vehicles
Investing is mutual funds gives you a lot of varieties such as equity funds (large cap, mid Cap, Small cap), debt funds (Long, short, ultra-short term), hybrid funds (Balanced, aggressive), bond, sector, Index and money market mutual funds.
For example, if you have a good idea about the Pharmaceutical Industry and know that it will perform very well over the next 5-10 years. What you can do here is select a sector specific fund in the Pharmaceutical space and invest without any difficulty.
Likewise, if you are into active portfolio management, the availability of different types of mutual funds allows you to build a diversified portfolio at low cost with ease.
As is with any other type of investment, there are also certain risks involved in buying mutual funds.
These investment options can experience market fluctuations and sometimes provide returns below overall market returns.
But in a longer time frame of 8 years and above the power of compounding kicks in.
In conclusion, if you want to accumulate real money for your financial goals such as children higher education, marriage and retirement then investing in mutual funds is one of the best investment vehicles.
Please share your views in the comments below and share this article with someone who is still deciding whether to go the mutual fund way!