Top 7 reasons why you should invest in mutual funds

Investment experts always advise retail investors to invest in mutual funds. But why? In this article, the author provides seven reasons for which we should invest in mutual funds.

In a recent survey it has been found that Indians are very good in savings but not good in investment. In fact many of us do not know the difference between savings and investment. We must invest properly for fulfilling our goals and for a proper retired life. Investment experts always advise us to invest in mutual funds. In this article, we will try to understand the reasons why we should invest in mutual funds.

# 1: Mutual funds give higher return

All of us are interested in higher return. Experts advise us to invest in equities which would beat the inflation. But at the same time, it is not everybody's cup of tea to invest in direct equities. We have no idea about various investment information. We do not know much about the micro economic conditions. We cannot interpret the balance sheets of the companies in a proper manner. So, for common investor, it is really more risky to invest in direct equities. Here comes the equity mutual funds! Equity mutual funds are managed by investment managers who have all related information in their finger-tips. So, instead of investing directly in equities, we must chose equity mutual funds. It has been found that for a time period of five years or more, equity mutual funds give significantly good return.

So far debt mutual funds are concerned; these mutual funds also give much better return than the fixed income instruments like PPF, FD, etc. So, if an investor is risk- averse but wants better return than PPF, FD, Corporate Bonds etc., he/she should opt for debt mutual funds.

# 2: Mutual funds are professionally managed

As already stated, all the mutual funds work under professional fund managers and their teams. These professional fund managers are much more knowledgeable than any individual retail investor. They take decisions based upon the knowledge and information available with them. So, mutual funds are professionally managed and we can get the benefit of their knowledge by paying a very small amount as professional fee.

# 3: Disciplined investing

Many people invest in recurring deposit schemes of banks and post office. Nowadays, Government recurring deposit schemes give a measly 6.9% p.a. return, which is not able to beat the inflation. If an investor instead of investing in recurring deposit schemes put the same amount in a mutual fund scheme through SIP, he/she will be much more benefited in terms of return over three years or more. So disciplined investing in mutual funds creates more wealth for individual investor.

# 4: Less/No lock-in

Perhaps we all know that all traditional investing instruments come with long lock-in period. This creates problem in case of emergency. If we are required to withdraw our deposits because of some emergency, the fixed income instruments like PPF are not very conducive. There are various regulations and ultimately we cannot withdraw the amount from such fixed income instruments on time. On the other hand, there is less or no lock-in period in mutual funds. So, in case of emergency, we can withdraw even more than 90% of money from our mutual fund accounts. This is a distinctive advantage of mutual funds over fixed income instruments.

# 5:: Mutual funds provide diversification

The investment experts always advise us: "Don't put all your eggs in one basket". This means the experts always advise us to diversify our investment. Mutual fund is an extremely potent instrument for diversification. No mutual funds put entire amount in a single equity. Diversification is the essence of investment philosophy of mutual funds. So, even if an individual investor invests in a single mutual fund, he/she automatically gets the benefit of diversification.

# 6: Different mutual funds as per suitability

The condition of every individual investor is not same. Some investor can keep money for a longer period of time, some cannot. Some investors are risk-averse while some investors can take more risk. Mutual funds provide solution to every type of investor. Within equity mutual funds itself; there are various special categories like diversified funds, large cap frunds, mid cap funds and small cap funds. The investor can choose in all these type on the basis of his/her risk- taking ability. Same is applicable for debt funds. Not only these two types, there are hybrid mutual funds which provide facilities of equity mutual funds as well as less volatility of debt mutual funds. So, the investors can chose their funds (for investment) according to suitability.

# 7: Investment in mutual funds is very convenient

Nowadays investment in mutual funds has become very convenient. Starting an SIP or making a lumpsum investment can be done online sitting at residence. Even tracking the performance of the investments can be easily done online. Bank mandate can be set up for SIP(s). We can easily increase or decrease our SIP on online mode. It is not at all required to visit the mutual fund office for investment or withdrawal. So, investors who do not want to visit mutual fund office(s), can invest in mutual funds from their residence or office.

Concluding comments

Keeping in view the aforestated seven benefits of investment in mutual funds, all of us must ensure that we invest regularly and systematically to get high return and generate wealth in the long run.

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