Why is it a Good Idea to Invest in Mutual Funds?

by Summer Oberoi

It is always smart and wise to invest your money that gives you great returns and keeps your money safe at the same time. As per the Association of Mutual Funds in India (AMFI) reports, assets under management in mutual funds have grown to INR 25.49 trillion in the last 10 years.

People in India are now more open to investing in financial markets. However, first-time investors normally choose mutual funds over stock trading as it is a safer and more convenient option to invest money in the market.

If you are also planning to invest in mutual funds, here is everything you need to know.

Why Mutual Fund?

Normally, investors choose mutual funds to ensure their money is invested in diverse stocks and achieve returns that are not affected by inflation.

Here are the other strong reasons to motivate you to invest in mutual funds.

  • Easy to understand and access

A mutual fund is a regulated investment fund that is professionally managed. The money in it is collected from retail and institutional investors in one place to invest in various assets. Some of the major assets include bonds, commodities, and equities. It also gives you the ability to invest whatever amount you can afford. You can start investing from as low as INR 500.

  • Build long term wealth

With mutual funds, you can generate long term gains in a sustainable manner. For instance, if you invest INR 1,000 for an expected rate of return of 12%, the value of your investment after 20 years would be INR 9.89 Lac.

  • Beat inflation

On average, equity mutual funds give a return of over 10% in a period of 10 years. With inflation around 7% per annum, you can make real returns of around 3%. Hence, you can beat inflation easily by investing in mutual funds.

Equity funds can help you earn more on your money than low risk investment options like fixed deposits or PPF where inflation is not factored on a year-to-year basis. You can also earn good returns with a hybrid mutual fund or bond mutual fund and beat the average inflation rate. These funds are also less risky than equity mutual funds.

  • Heavily regulated

Mutual funds are regulated by the Securities and Exchange Board of India (SEBI). The monthly performance of the funds is published by AMFI. It also publishes the quarterly and yearly reports of funds performance. Mutual funds are also subject to periodic audits and need to meet strict compliance standards to safeguard the interests of investors.

If you are planning to invest in mutual funds, it is advisable to do thorough research to select the right fund.