Investment in Mutual Funds as tool for Financial Planning
Each one of us is unique, and so are our financial goals. While one may want to save for their child’s education another may have retirement planning or holiday planning as their financial goals. These goals determine the savings you need and the financial planning you must do to attain the desired goal amount.
Mutual fund investments can be beneficial to help you meet all your short-term, medium-term and long-term financial goals. The article explains why it can be helpful to invest in mutual funds.
- Professionally managed
Skilled fund managers efficiently manage mutual funds. These fund managers study the growth prospects of a company, its competitive advantages and performance before investing your money in it. They have real-time access to crucial market information that helps them make the right decisions for your portfolio.
- Offer diversification
Investing all your funds in stocks of a single sector can be relatively risky. Mutual funds help in diversifying your investment portfolio. It can offer you ownership of different stocks and bonds of companies belonging to varied sectors. This spreads the risk and could make your portfolio less volatile, thereby helping to create wealth.
- Low-cost investment
Buying individual stocks can be expensive, but mutual funds make them affordable. This is because mutual funds manage a large number of investments from various investors, which distributes investment costs.
- Lower investment thresholds
You can begin investing in mutual funds via a Systematic Investment Plan (SIP) for as low as Rs. 500 to achieve long-term equity benefits. The minimal investment threshold encourages steady investment and can help you achieve your goals swiftly.
- Transparent and safe
You can invest in mutual funds online. It offers exceptional transparency, with detailed information about the scheme before you invest in it. Essential features such as the fund’s rate of return, its performance in the last three to five years, etc. are readily available for you to read.
- Offer liquidity
Mutual funds offer excellent liquidity. If you are looking to buy or redeem an open-ended scheme, you can buy/sell on the day’s Net Asset Value (NAV) quickly. The money gets credited to your bank account within a short period.
- Saves tax
Mutual funds are excellent investment tools for saving tax. For example, you can invest in tax saving mutual funds such as Equity Linked Savings Scheme (ELSS). It has the lowest lock-in period of three years among all tax-saving instruments. It also offers remarkable potential to grow your initial investment. You can claim a deduction under Section 80C of the Income Tax Act up to Rs. 1.5 lakhs and reduce the tax payable on your income.