A mutual fund is a financial instrument that pools money from different investors and invests in securities such as bonds, stocks, etc. An investor in a mutual fund scheme owns a certain number of fund units. These units, like stocks, hold a value that changes with the value of their underlying security. The securities owned by the mutual fund depend on the scheme’s investment objective.
Fund managers, responsible for managing mutual fund schemes, ensure the mutual fund remains consistent with its investment objective in all market conditions.
Additionally, fund managers actively trade new securities to ensure their fund delivers investors worthwhile returns. This makes mutual funds an intriguing and popular investment, especially for investors who do not have the time or skills to trade actively in the markets. Read on to learn the other benefits of investing in mutual funds.
- Professional fund managers handle your investments
Professional fund managers with years of experience manage your mutual fund investments. They have an in-depth understanding of different markets and the pros and cons of each security. They leverage their knowledge to help their investors earn decent returns.
Risk diversification is one of the main reasons why mutual funds are very popular among Indian investors. To establish a diversified portfolio, you can combine debt, equities, hybrid asset classes, ETFs, and index funds. It helps reduce your risk.
- Mutual funds offer a variety of investment options
Each investor has a unique risk appetite and investment goal. Mutual funds work for all of them as they offer several investment options. You can invest in equity funds, debt funds, hybrid funds, tax-saving schemes, and more per your particular investment goal. You can also choose the type of investment mode at your convenience. For instance, you can choose to start a SIP (Systematic Investment Plan) or even make a lumpsum payment.
- Mutual funds inculcate discipline
Many investors choose to start SIPs for their mutual fund investments. SIPs ensure they are disciplined in making regular investments, which helps grow their wealth in the long run.
- More liquidity
Open-ended mutual funds can offer more liquidity than other investment tools such as infrastructure bonds or life insurance plans. If you have invested in open-ended funds, you can quickly redeem your units on a T+3 (transaction+3 days) basis. If you have invested in low duration, overnight, or ultra-short funds, you can redeem your units on a T+1 basis. These are popular mutual funds, as investors can arrange for the funds immediately whenever they are facing a financial crunch.
The best part about investing in mutual funds is that you do not need a high investment corpus and can start off with a low amount. Over a while, your mutual fund investment can help you achieve financial independence. However, consider factors such as your risk appetite and financial goal before investing in specific mutual funds schemes.