Home Finance WHY YOU SHOULD SHIFT TO MUTUAL FUNDS FROM CONVENTIONAL MODE OF INVESTMENT

WHY YOU SHOULD SHIFT TO MUTUAL FUNDS FROM CONVENTIONAL MODE OF INVESTMENT

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MUTUAL FUNDS

It is extremely difficult to save money out of the limited amount of earnings you may have. But saving something is better than just spending all your money on things you may not necessarily need. However, even after saving money, what do you gain out of those savings. Granted that it means you have more money than you would have otherwise. However, that is not the most amount you can have. The idea is to put your savings to good use and to use your current money to earn more money.

To do this, you must invest your money in a profitable avenue. Choosing the right avenue can not only add to your savings but also generate wealth that you could never have just by collecting parts of your income from your job. However, the biggest questions n the minds of aspiring investors is which fund or stock to invest in.

While every option has its pros and cons, there will always be one option that works for you perfectly. This depends on what your investment plan is. If your plan is to take some money out of your salary each month to ultimately create a substantial corpus for your retirement, mutual funds is the best bet for you.

What are mutual funds?

Mutual funds have been around long enough for them to be a tried and tested financial product. Each year, they attract more people to invest with their whole range of features and benefits. However, before you decide to follow the same example, you should know what these mutual funds are.

Mutual funds are financial product that allows you to invest smaller amounts regularly or a bigger amount one time, depending on how you feel comfortable. Moreover, there is an incredible variety in mutual funds with equity-based, debt-based, and hybrid mutual funds as its broad classifications.

Mutual funds allow you to take advantage of compounding and develop a hefty sum off your investment. This means you end up making profit over your profits. Hence, they should be your first choice when looking to make an investment. Here are some other reasons that you should prefer mutual funds over other investment options:

Flexibility

The best perk you have with mutual funds is that you can redeem your profits at any time. Meanwhile, other investment options have a specific lock-in period. Moreover, other options like fixed deposits can have withdrawal conditions like pre-exit penalty. These do not trouble you in the case of mutual funds. However, be mindful that Equity-Linked Savings Scheme (ELSS) are tax-saving mutual funds that have a lock-in period of 3 years.

Potential to diversify

Perhaps one of the greatest money moguls of our time, Warren Buffet has aptly said that it is not wise to put all your eggs in one basket.  This means you shouldn’t invest all your money in one stock or bond. Mutual funds divide your money across different stocks so that you are not dependent on the progress of one. This way, even if one of your stock is performing poorly, there may be another that might be doing wonderful at the same time. This means your financial growth does not stop. Doing so also reduces the risk of loss of investment and builds a great portfolio for you to work with.

Making smaller investments

Any aspiring investor has the notion that you need a large sum of money to make an investment that would make a difference. While this may be true in some investment options, mutual funds are not one of them. How you invest depends on how your cash flow is. If you have enough money at hand to pay a lumpsum, then you can invest it and simply wait until the time comes to reap the rewards. If you work a tight budget based on your salary, go for SIPs (Systematic Investment Plan) that allow you to make monthly payments that accumulate into a bigger amount over time.

So, what are you waiting for? Invest in mutual funds today. What’s more, you can now easily invest in mutual funds online from the comfort of your home. Happy investing!

 

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