Mutual funds (MF) have today become the de facto investment option for those wanting to play the markets in a safe, structured manner. They offer a huge amount of benefits to novice and experienced investors alike, with a range of mutual fund products to suit different investment objectives, risk profiles and horizons.
This is why you should initiate smart investments with mutual funds in India:
They minimise risk and diversify your portfolio.
Any market-linked investment carries an element of risk, whether low, moderate or high. However, mutual fund products with a good track record offer an important element – risk mitigation. It is the process by which the MF reduces the risk in a particular asset or scheme. They are not as risky as you would initially assume, though the risk depends to a large extent on the fund’s asset allocation, time frame for maturity, nature of scheme (equity or debt), etc. However, when one asset class performs poorly, the risk of loss is mitigated by another asset class doing correspondingly well.
They are not as difficult to understand as you might assume.
The mutual fund universe is certainly a dense and complex one, but it is not confusing to the investor who takes the trouble to understand how MFs work. Today, online trading and purchasing of MF schemes has brought all the relevant information out in the public arena. So you can get whatever information you seek at every stage of the investment process. Besides, the best fund houses offer the services of qualified fund managers to oversee your mutual fund product investment in totality.
They are tax efficient.
The current tax laws allow for MF tax benefits under different sections. Primarily, your investment in mutual fund products is protected from tax liability under Sec 80C of the Income Tax Act, 1961. You can get up to Rs 1.5 lakh benefit for investing in ELSS, while not being charged LTCG (Long Term Capital Gains) tax on the returns on equity MFs even when you sell it a year after purchase. But do inquire about the tax benefit of the mutual fund product under advisement at the time of purchase.
They are quite liquid.
The best fund houses in India let you apply for mutual funds online – you can research, ask questions, make calculations and buy the fund online quite easily. However, you can also liquidate the MF just as easily in case you wish to defer the investment or if you are in need of funds. The underlying asset can be encashed easily and fast in case of the mutual fund products. However, do ensure that you sell or apply for the mutual fund online at key moments in the market cycles.