KNOWLEDGE CENTRE Financial Planning / Why Should You Use Mutual Funds For Wealth Creation?
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Why Should You Use Mutual Funds For Wealth Creation?


The primary objective of investing is to create wealth over the long-term. You may choose from a large number of financial instruments. These include equities, bonds, mutual funds, gold, real estate, and many more. Every investment has certain pros and cons. You must consider important factors such as your financial goals, investment horizon, and risk appetite before making your decision.

Over the last few years, mutual funds (MFs) have attracted a lot of interest. Asset management companies (AMCs) offer different types of schemes such as equity, debt, and balanced funds. Each of these schemes invests in different asset classes and is beneficial to meet certain financial goals.

If you are willing to assume higher risk, you may combine large or mid-cap schemes with multi-cap funds. If you are a moderate risk investor, you may choose equity-oriented returns. Finally, if you are risk-averse, debt funds or dynamic asset allocation schemes are beneficial.

There are several benefits offered by such investments that make these a popular investment avenue. Here are seven reasons why you must use these for wealth creation in the long-term:

1. Mutual Funds Are Professionally Managed
2. Goal Management Using Mutual Funds
3. Mutual Funds Offer Portfolio Diversification
4. Invest In Mutual Funds SIPs For Easy Long Term Wealth Creation
5. Liquidity Offered By Mutual Funds
6. Tax Benefits Offered By Mutual Funds
7. Mutual Funds Operate Transparently

Now let’s look at the above mentioned points in more details:

  1. Mutual Funds Are Professionally Managed

    Professional and experienced fund managers manage all the various schemes. They make investment decisions based on in-depth research and analysis. One of the important considerations taken into account by fund managers is managing the risks. You may not have the experience, time, or the expertise to make intelligent investment decisions. Investing is not a one-time activity; you need to track and monitor its performance regularly. A fund manager tracks all the variables and makes necessary modifications based on market movements and conditions.

  2. Goal Management Using Mutual Funds

    You may have different financial goals and objectives. Furthermore, these change during your lifetime. Some common goals may be buying a home, children’s education and wedding, and retirement planning. Mutual funds offer different schemes that allow you to meet different goals whether these are short, medium, or long-term.

  3. Mutual Funds Offer Portfolio Diversification

    While investing, it is important to include multiple instruments in your portfolio. This allows you to mitigate your risks through diversification. Most of the MF schemes invest in different asset classes, which ensure portfolio diversification.

  4. Invest In Mutual Funds SIPs For Easy Long Term Wealth Creation

    Investing in MFs is very easy and may be done even with an amount of INR 500 through a Systematic Investment Plan (SIP). You may invest online in SIPs right from the comfort of your home or office. Additionally, funds offer flexibility by allowing you to switch between schemes. Furthermore, AMCs provide regular account statements and portfolio details to allow you to monitor and track the performance of your chosen funds.

  5. Liquidity Offered By Mutual Funds

    When you invest in open-ended schemes, you may exit your investments whenever required. This offers complete liquidity to your investment. If you choose to invest in liquid funds, instant redemptions directly to your bank accounts are available. Liquid mutual fund give you higher returns as compared to fixed deposits (FDs) or savings bank accounts.

  6. Tax Benefits Offered By Mutual Funds

    Certain plans like the Equity-Linked Savings Schemes (ELSS) offer tax deductions up to ?1.5 lakhs according to section 80C of the Income Tax Act. These funds have a mandatory three-year lock-in period. A majority of the corpus is invested in equity and related instruments, which enables ELSS to deliver higher returns. The dividends and interest earned on your ELSS investments are taxed at 10% though if your total returns in an assessment year goes above ?1 lakh.

  7. Mutual Funds Operate Transparently

    The Securities and Exchange Board of India (SEBI) regulates all AMCs. This ensures complete transparency of your investments. As part of the regulatory compliances, AMCs periodically disclose all scheme-related details. Therefore, you are assured that your investments are regulated ensuring transparency.

Compared to traditional investments such as FDs, bonds and government securities, and gold, mutual fund returns are higher. This is because these funds invest their corpus in multiple asset classes. These include assets such as gold, short-term and long-term bonds, equities, and cash. Every MF scheme is designed based on a particular risk-reward ratio, and accordingly their asset allocation and investment duration is decided.

MFs offer one of the best avenues for wealth creation in the long-term. However, it is important to choose the right scheme to ensure higher returns. Comparing hundreds of schemes is cumbersome and confusing. You may simplify this process with ARQ, our proprietary investment engine.

Our intelligent tool uses over a billion data points to compare and analyse different MF schemes on our Angel Bee personalized mutual fund recommendation mobile app. These are then matched with your personal goals, risk appetite, and lifestyle to offer the best investment recommendations. ARQ uses scientific techniques, such as quants and algorithms to automate the process eliminating all human bias and interference.


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