Why to invest in mutual funds- Explained

New investors frequently tend to ask – Why should one invest in mutual funds? What are the benefits it offers and is it safe or risky to invest in mutual funds? Here are the explanations one would expect to have to clarify.

Benefits of investing in mutual funds-

🔓 1. No minimum locking period: The most important benefit I tell to the investors is- there is no minimum or maximum duration of investments. Many government investment tools like EPF, PPF, NSC or postal investments where investor has certain number of locking periods. But mutual fund investment can be redeemed any day when you need. But one need to understand, in order to have tax benefits on the gains from mutual funds, you have to keep invested for the period of one year. That is it; no more locking period is required.


💰 2. Start investing as low as Rs. 1000: Most SIP mutual funds have option of investing at very low monthly contribution of Rs.1000, so you do not have to bear the sudden burden of investing, and your investing will be systematic and disciplined. Why I use this term is, we generally tend to be casual and do not seriously think of importance of investing for long term goals. By the time we realize, much of the time is already wasted due to lack of awareness.


🤑 3. More reward for optimum risk: We all know, without risk it is difficult to have good rewards. So one must understand the risk taking capability of oneself. Since mutual funds are linked to market fluctuations, there will be risk associated. However, if one invests long term and systematically in good funds, surely, the risk to reward would be in favor of investor, and investors can build good capital. But again, learn and learn before you invest. Mutual funds offer better reward to risk ratio compared to stocks investments due to diversified portfolio, which is difficult to maintain for a small investors.


🔄 4. Several Options and variations: One thing I really like about mutual funds is the vast choices investors have, to choose based on one’s suitability and knowledge. There are hundreds of funds schemes available with very good fund houses. One has to spend some time to understand one’s needs and preferences and you have many options available.


I hope you liked the blog, please feel free to ask any questions you may have and I would be happy to answer them. By then, happy investing and Enjoy!


To know more on how to invest in mutual funds and where to search for resources regarding mutual funds, keep reading my blog!

What returns mutual funds will give with Rs.1000 SIP?

SIP is a short form of - Systematic Investment Plan, where in an investor makes a periodic investment in mutual fund for appreciation of wealth. One of the new investor asked me this simple question –What returns can I expect investing in mutual funds with as low as Rs.1000. Here I tried to answer it in simple manner for every new investor’s benefit.

Mutual funds returns are dependent on three main factors- 

 

1. Appreciation of the fund you invested in
2. Amount and frequency of SIP you invest in that fund
3. How long you stay invested

Let me give an example-

Mr. X has Rs. 1000 as SIP at monthly frequency. He decides to invest in a fund, which historically shows average returns of say 25% for this case, which is possible and well proven historically for many funds. Considering the scenario remains the same and Mr. X is capable of taking the market risk, at the end of 10 years:

•   Amount Invested by Mr X: Rs.1.2 Lacs
•   Future value of SIP of Mr X: Rs. 5.22 Lacks
•   Total gains : Rs. 4 Lacs

That means income of Mr. X has multiplied more than four times in just 10 years, which is very good returns scenario. Similarly, if Mr X considered investing Rs. 10000 in the same situation, would have yielded 52.2 Lacks in just ten years. Isn’t it lucrative? Of course, mutual funds and stocks are risk and rewards based investments, but given the facts, it is advisable that you should invest in mutual funds if you are capable to manage risk associated with market fluctuations.

 

Hope this article was helpful to all the new investors! Happy investing and Enjoy!