Why should I invest in Mutual Funds when I can save my money in a bank account? Before answering this question, let us first give you a brief idea of what Mutual Funds are. A Mutual Fund invests your money across a span of companies. There’s a fund for every goal and every risk appetite. Now, let’s see why you should go for Mutual Funds.
Now most of us have learnt the formulae for simple and compound interest (or at least come across these terms). If you had paid attention for at least a few minutes, you would know that compound interest yields so much more than simple interest. Here, check out a SIP calculator to see how a SIP can turn humble investments into a large corpus.
For All Risk Appetites
‘Wow, you invest in Mutual Funds? You must be a risk taker!’ Ummm, no.. They may have invested in a low risk fund, for all we know. There is a fund for every risk appetite. Fund Managers study the market landscape and select the companies that align best with the fund’s risk level. Whether you are an aggressive risk taker or a risk-averse investor, there are numerous options for you in Mutual Funds.
You may ask, ‘How can an investment be compatible or incompatible?’ What we meant is, Mutual Funds are compatible with all kinds of budgets. From a wage earner to businessmen, anyone can invest in Mutual Funds. You can either invest through a SIP (Systematic Investment Plan) or invest lumpsum, should you decide to invest in Mutual Funds. Got only a few hundreds? No problem, you can start a SIP with as little as Rs 500. Stumbled upon an unexpected income? Make a Lumpsum investment!
Yes, you read that right! Mutual Fund Investments can save tax too! But not all Mutual Fund investments are subject to this privilege. ELSS Funds (Equity-Linked Savings Scheme Funds) give you the dual advantages of saving tax u/s 80C, and building wealth simultaneously. We know we had you at the word ‘tax-saving’, but there’s more to ELSS Funds. When compared to other tax saving investments, ELSS Funds come with a much shorter lock-in period of 3 years. So you can hit the dual goals of wealth creation and tax-saving in a single stroke.
Options, Options, Lots of Options!
Apart from showing great diversity in risk levels, Mutual Funds also offer options based on duration, amount paid, liquidity, instruments they invest in, etc. Whether you want to make small regular investments, or make one big investment, you have multiple investment options to choose from.
Types of SIP
Perpetual SIP: In this SIP, you can choose to end the investment whenever your goal is met.
Flexi SIP: This is a great option for those whose income isn’t fixed. In Flexi SIP, you can choose how much to invest every month / or every installment.
Step-up SIP: In this type of SIP you can start small and keep increasing your investments gradually.
Multi SIP: With a Multi SIP, you can invest in multiple schemes of an AMC. It would be considered as a single investment and not as multiple SIPs.
SIP doesn’t have to be a monthly affair either. Depending on the frequency and flow of income, you can choose the SIP frequency. It can be monthly, quarterly or a custom-set frequency.
Types of Lumpsum Investment
Lumpsum investment comes with its own appeal and varieties. The next time you come across some unexpected income, you’ll know which investment is the best for you.
One-Time Investment: The entire amount is invested in a fund, in one go.
Systematic Transfer Plan (STP): In this, the full amount is temporarily parked in a fund and later transferred to another fund in uniform, regular installments.
Systematic Withdrawal Plan (SWP): In SWP, one can withdraw fixed amounts at regular intervals from the Mutual Fund investment they have made.
Apart from the varieties in the modes of investment, Mutual Funds also show great diversity in the assets they invest in. You can choose a wide range of funds including Equity, Debt, Hybrid, Sector Funds, etc.
If liquidity is what’s been keeping you from investing in Mutual Funds, then you’ve probably not heard about open-ended Mutual Funds. With no lock-in period, open-ended funds offer good liquidity to investors.
The Mutual Funds landscape is well-governed by AMFI (Association of Mutual Funds in India). Keeping in mind the welfare of investors, AMFI lays down strict rules for the operation of Mutual Funds.
Early investment = More Benefits
Not to sound cliched, but the longer you’re invested for, the bigger the corpus. Any Mutual Fund calculator will show you how much difference an extra 5 years can make in your investment journey. Sometimes small, regular investments started early may overtake bigger investments that have been held for a shorter period. Be wise and let time and compounding work their charm on your investments.
2 Investments in one Move
There are some AMCs that offer ‘SIP with Insurance’. Now, the terms and conditions vary with the AMC, but long story short, if the plan suits you, you could hit 2 investments in one go. Again, like all investments, you have to figure out the suitability of this hybrid product. Consider your age, insurance cover, instances covered, and policy duration before you decide to go for this.
Sure, you can invest in stocks, real estate and what not. But Mutual Funds diversify your risk by spreading your investment across a range of companies. The percentages of investment in the companies covered by the fund will also be mentioned in the fund details, to help you decide better. For example, if you’re not one that believes in heavy investment in the digital area, you can always choose funds that allot less percentages to the digital field.
Hope this article has helped you with your investment decision process. Last, but not the least, Do NOT Forget to read the scheme information documents before investing.