Knowing the Benefits of Investing in Mutual Funds

Who is a Mutual Fund Advisor?

Investing in mutual funds is highly beneficial especially if you are looking for a simple yet diversified way of investing. Mutual funds are professionally managed and convenient. But that’s not all the reasons why mutual funds are beneficial.

In today’s day and age, there are numerous options to invest money, one of the easiest options is mutual funds. A mutual fund is a financial instrument, which pools the money of different investors and then a fund manager invests them in different investment options and securities. When you invest in a mutual fund, you become the owner of a certain number of units in that fund. The income that the fund generates is then distributed among investors by calculating the mutual fund’s net asset value.

Investing in mutual funds can be beneficial only if you are aware of the rules. Knowing the rules of investing in mutual funds can help you save from losses or undue risks thereby creating your wealth for the long run. Let’s deep dive into the benefits of mutual funds.

Diversification

It is always wise to never put your eggs in one basket while investing and with mutual funds, you can do just that! When you invest in mutual funds, your fund manager will invest your money in different securities including equity, stocks, debt funds and other money market instruments. Logic dictates that there is little chance of all instruments not growing to their potential. It is also possible that if one instrument doesn't perform as well as the other, they balance each other out, thereby making your investment safer.

Professional management

If you are not an expert at designing houses, would you design your house or hire an architect? Similarly, if you are not an expert at investing your money, isn't it wiser to hire a professional fund manager than taking risks investing by yourself? Mutual funds are monitored and managed by professional fund managers who are responsible for deciding where and when they should invest the pooled funds. This is obviously not decided as per the fund manager’s whims. Investments are made by closely following market trends and basis exhaustive research. Fund managers have been in the business of investing in mutual funds for a long time and are well seasoned in investing in the right place. So, you can be rest assured that your money is in good hands.

Liquidity

Yet another mutual fund benefit is liquidity. In layman's terms, liquidity means the ability of an asset to be converted into liquid cash. Imagine if you have an emergency and need cash but don't have enough funds in your bank. It's not possible to sell property or avail of a loan instantly. But with mutual funds, you have the freedom to withdraw your money instantly. A mutual fund investment is known to be a highly liquid asset and can easily convert to cash whenever you need some liquid funding. That being said, you need to ask your fund manager if your mutual fund can be cashed out on an immediate basis as some funds can have a lock in period.

Smaller, disciplined investments

When you invest in property, you must shell out a large sum of money. Often, people can take years to gather that kind of money. Isn't the wait demotivating? Withmutual funds, you can start investing with an amount as minimal as Rs.500. If you don't have the discipline to invest regularly, a Systematic Investment Plan can help you inculcate the habit. This means you are not constantly worried about investing large sums and you can also ensure that you are cultivating a routine for investing periodically.

Convenience and simplicity

Unlike stock market investments, which can be quite a complicated affair if you don't know what you are doing, investing in mutual funds is a piece of cake. All you must do is approach a bank or a non-banking financial institution and they will be able to set up a mutual fund account for you instantly. You can also set up a mutual fund account from the comfort of your own home.

How? Online. Once your Know Your Customer (KYC) documents are verified, you can start investing using online accounts or even mobile applications. It really is that easy.

Despite the benefits, mutual funds are subject to market risks and you must always read the offer documents carefully before making any investments.