Nowadays, financial independence is of paramount importance. You need money – not only to sustain your present-day lifestyle but also to provide for your future goals. Therefore, it is prudent that you don’t just save money but take steps to maximize your savings and create wealth.
It is at this point that investments come into the picture. The underlying principle behind investing your money is that ‘smart investments lead to good returns.’ Instead of putting your money away in a bank savings account; therefore, you must choose to invest your money in different money market instruments such as mutual funds, bonds, and stocks. Doing this will allow you to earn significant returns on your savings and make sure that you have ample wealth to take care of your goals.
Out of these instruments, mutual funds have emerged one of the most productive ways for small and medium investors to start their wealth creation journey. Mutual funds are also simple and easy to understand.
Let’s look at the benefits of investing in mutual funds that will help you make an informed decision:
- They Help You Diversify Your Investment Portfolio
The performance of mutual funds depends on market conditions; there is always a certain level of risk associated with mutual fund investment. It is the risk profile of any mutual fund determines your gains or loss over the period. Therefore, you need to minimize your risk by investing your money more than one fund option, instead of putting all your money into one instrument.
Suppose you have invested all your savings in the shares of a tech company. In case the tech company you’ve invested in goes bankrupt – their stock value will plummet suddenly, and you may have to incur a substantial loss. On the other hand, had you put your money into shares of more than one company, your investments would have easily overridden the loss by minimizing the risk associated.
In financial terms, this process of investing in multiple asset classes, be it equities, debt, or liquid assets to spread the risk, is called diversification. Investing in mutual funds helps diversify your investment portfolio – meaning that your money will be invested in different asset classes so that you can avail maximal returns.
- They Give Easy Access to Better Investment Opportunities
When it comes to investing, the chances are that you may feel ill-equipped to invest your money. You may either think that you don’t have enough savings to go for the higher-priced equities or have inadequate understanding of the money market.
With mutual funds, however, you can put all such doubts to rest. Mutual fund investment allows you to be a part of a bigger pool of funds, along with other investors who share your risk. Thus, even though you might be investing a small amount of money, the collective value received from all other investors will help ensure that you rope in all the big guns (high performing equity instruments) to earn maximal returns.
In short, holding mutual fund units means you own a specific portion of a bigger portfolio with a broader holding of shares.
- You Can Make the Right Investment Decisions with Fund Managers
Another advantage of investing in mutual funds is that you do not need to do the required research and allocate your money into different asset classes on your own. As an investor, while you may not have enough knowledge and experience to identify which assets would align with your investment goals. However, you can improve your chances of availing maximal returns by leveraging advice from experienced fund managers.
Fund managers are essentially tasked to assist novice, risk-averse and even seasoned investors, market analysts, and traders in making judicious investment returns. Hence, you can make an informed decision about where to invest – in equities, debt, or liquid funds, and decide on an appropriate investment tenure.
As detailed above, the benefits of mutual fund investments override the related risk provided you make the right investment choices. If you do not have time to analyze various mutual funds, you can ask for help from insurance advisors, such as FinEdge, India’s leading financial planning experts.
Overall, it would help if you considered that mutual funds allow you to maximize your savings in a relatively shorter period than other traditional investment options. Therefore, you need to assess your financial needs and get onboard the mutual fund train!