As of January 2020, the assets under management (AUM) of the Indian mutual fund industry was worth Rs 28.19 lakh crore (28.19 trillion). Over the last 5 years, the AUM has grown by more than 200%. SIPs seem to be the favored method of investing in mutual funds. In FY 19-20, the total SIP inflow reached a staggering Rs 82,929 crore. These numbers indicate the rising popularity of mutual funds as an asset class. Mutual funds have offered a variety of benefits to investors due to which they have become popular. Let us check out some of the benefits.
FIVE KEY BENEFITS OF INVESTING IN MUTUAL FUNDS ARE:
1.EASY LIQUIDITY: One of the positives of mutual funds investment is its liquidity is high. Funds from the redemption of a debt mutual fund are credited within a couple of days whereas for equity mutual funds, the funds are credited within five days of placing a redemption request. However, an investor should be aware of exit loads if any.
2.PROFESSIONAL MANAGEMENT: One of the biggest advantages of mutual funds is that your money is being managed by a credible fund manager and a trusted team of experts. They are involved in thorough research and analysis required to find quality investments for ones’ portfolio. In return, they charge a small processing fee on the return generated, which is very less as compared to the large scale of profit you gain. Mutual funds investment in India is regulated by the government agency SEBI, which supervises the mutual fund industry and works to safeguard the interest of the investors.
3.DIVERSIFICATION: A mutual fund diversifies its portfolio across multiple instruments such as equity, debt, bonds and holds a certain percentage as cash. This reduces risk. When one asset class doesn’t perform, the other asset classes may perform well and balance out the overall performance.
4.AFFORDABILITY AND CHOICE: Mutual funds do not require large capital or a very long period of investment. One can begin investing in mutual funds with as less as Rs 500 per month.
There are several types of mutual funds. These can be categorized according to their mode of investment (Systematic Investment Plans or lumpsum), asset classes they invest in (Equity/Debt/Hybrid), sector-specific (Banking/IT) etc. With so many choices, an investor can consider different mutual funds for different goals.
5. LONG TERM TAX BENEFITS: This is one of the greatest benefits of mutual funds investment. Investors can consider Equity Linked Savings Schemes (ELSS) for creating wealth as well as saving taxes. Thanks to the lock-in period, the investor is incentivized to hold or continue with the investment in it which increases the chances of creating wealth.
Under this, you can save up to ₹1.5 lakh as tax benefits which can be claimed under Section 80C of the Income Tax Act.
The AUM of the mutual fund industry in India is predicted to reach an astounding figure of Rs 100 trillion by 2030. Thanks to the benefits of mutual funds discussed earlier, this may not be difficult for the sector.
To sum up, investing in mutual funds is always a wise option keeping the futuristic goals and aspirations in mind. These funds come handy in times of need and as they mature, one can avail their benefits. It is important that one should seek guidance from a credible financial advisor or a renowned institution before embarking on this journey or taking loans like gold loan, bike loan, used car loan.