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Why Mutual Funds Are One of The Best Investment Options?

Indian investors traditionally tend to be more averse to risk. As a culture, we want to play it safe yet, continue to grow our wealth systematically.

Why Mutual Funds Are One of The Best Investment Options? - vpn
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India, First Published Dec 2, 2021, 6:29 PM IST
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Private sector mutual funds initially made an appearance in India in the first few years after liberalization. Today, they are some of the most popular instruments being considered by retail investors.

According to the Association of Mutual Funds in India, the number of mutual funds investors in India stood at 1.19 crore by the end of March 2017. It rose to 2.39 crore as of June 2021, indicating that Indian retail investors today are bullish on mutual funds. So, what makes mutual funds so attractive to retail investors? 

Less risky as compared to stocks 

Indian investors traditionally tend to be more averse to risk. As a culture, we want to play it safe yet, continue to grow our wealth systematically. This cultural nuance holds back many investors from directly investing in the stock market, which has a high risk-high reward dynamic.

With mutual funds, investors can reap the benefits of a higher returns potential by investing in equity-based/ linked mutual funds. At the same time, they continue to ensure that a dedicated fund manager manages their risk.  

Higher returns than traditional instruments

Indian investors have a deep-rooted savings mindset. Traditionally, they have invested in fixed deposits, Public Provident Fund, Post Office Savings, National Servings Certificates, gold, and real estate. However, our appetite for faster returns is growing, especially with the interest rates of traditional instruments going down.

Mutual funds present an excellent opportunity for accelerated wealth creation as compared to traditional instruments. You can leverage online calculators to check mutual funds calculation by applying different rates of interest. 

Easy to access and purchase  

It is extremely easy to purchase a mutual fund online today. All you need to do is visit the website of the mutual fund house, choose the fund that meets your need, complete KYC details, and then make the purchase.

You can do it from your smartphone or laptop, and get all updates via SMS and email, and check how your investment is doing every month by logging into the website, or else by checking your inbox. 

Systematic investment option 

Flexibility is another attractive feature of mutual funds. It allows you to invest as per your budget and break down your investment into monthly, quarterly, or annual payments.

Known as SIPs or Systematic Investment Plan, this feature is leveraged by millions of retail investors worldwide to stay consistent in their investment, starting the journey earlier instead of investing large sums of funds.    

Tax benefits 

Mutual funds have a very attractive tax-saving option in the ELSS or Equity-Linked Savings Scheme option. Here you get the benefit of claiming tax deductions by investing up to INR 1,50,000, as well as the potential for high returns on your investment since it is linked to the stock market. At the same time, the risk is managed by a dedicated mutual funds manager with a proven track record of experience and success. 

Access to funds in an emergency

Emergencies are times when you are already stressed. Lack of finances should not be an additional reason to increase your stress. Though it's not advisable to dip into your mutual fund investments during an emergency, sometimes it may be inevitable. If you need to do the same, the funds will land in your bank account within 24 to 48 hours.   

The Takeaway

The Indian mutual funds market is vibrant, and retail investors are urged to diversify their portfolios by adding mutual funds investments. This is a critical step towards building a balanced, nuanced wealth creation journey that helps you reach your goals faster.   

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