Know the benefits of mutual funds before you invest

benefits of mutual funds

What are mutual funds?

Mutual funds are firms that pool money from many investors and invest in diverse instruments such as bonds, stocks, and short-term debt on their behalf. In India, the mode of investment has emerged as a favorite with investors as they generate healthy, inflation-adjusted returns over the years. This blog post will discuss the benefits of investing in mutual funds.

Benefits of mutual funds in India

Investing in mutual funds might benefit you, and you need to understand the factors that make this financial product attractive. The information will help you decide whether to invest in mutual funds. You can generate more wealth through mutual fund investment and a regular income. You can also secure your capital with the investment. With expert management, you can enjoy liquidity and the advantage of diversification.

Advantages of mutual fund lump sum investments

Investing a lump sum amount is a mutual fund strategy adopted by many investors. With a lump sum investment, you can easily control your entire investment. Also, you will have the opportunity to enjoy the power of compounding. A lump sum investment is a good option when the market corrects, which will give you the benefit of reaping a bounty when the market rebounds.

Advantages of mutual fund SIPs

SIP stands for systematic investment plans in mutual funds. An SIP will enable you to invest small amounts over a period of time, typically in monthly installments. Essentially, the SIP scheme works best for salaried individuals who have a fixed income earmarked for financial investments. If you opt for SIP, you don’t have to worry about market gyrations. SIP would help you generate a nest egg for your retirement or for other goals like your child’s higher education.

Advantages of mutual fund STPs

If you are going with STP, you are going to transfer your funds using a systematic transfer plan. Here, an investor transfers a specific amount from one mutual fund scheme to another. For instance, you can transfer your money from the debt fund to the equity fund. STP reduces the impact of market volatility in your portfolio.

Advantages of mutual fund SWPs

A Systematic Withdrawal Plan (SWP) allows you to withdraw fixed amounts from your portfolio at regular intervals. SWP is a good option if you are going to redeem the funds systematically. If you withdraw the amount at a perfect interval, you can get some regular income too.

What is the advantage of the mutual fund growth option?

If you are going with the growth option, you will make more money than the dividend option. Essentially, the scheme’s profits are re-invested, thus giving the investor the unique advantage of benefiting from the power of compounding. The growth option is ideal for investors looking to generate wealth over the long term.

What is the advantage of the mutual fund IDCW option?

If you choose the dividend option, the mutual fund house will typically pay you the dividend annually. However, there is another option—IDCW payments—-where dividends will be paid to you in daily, monthly, and quarterly intervals. However, like company dividends, mutual fund dividends are announced at the sole discretion of the fund house. You can consider IDCW mutual funds if you are looking for a regular income.

Conclusion

You have learned about some of the important benefits of investing in mutual funds. We have also discussed various ways of redeeming your mutual fund investments. The information should help you zero in on the category that will benefit you the most.

FAQs

What are three reasons why people invest in mutual funds?

First, you will get a good return if you stay invested. Mutual funds will help you build a diversified portfolio. SIP schemes allow you to invest small amounts.

Why are mutual funds better than stocks?

While comparing both investments, you get the sense that mutual funds might be a better option for you. Both instruments have risks, as you can get lesser returns in mutual funds as well. Direct investment in stocks, of course, is subject to market risks. In mutual funds, there could be losses on paper, but if you stay invested, you will reap profits.

Is it beneficial to invest in mutual funds?

Mutual funds can fetch you good, inflation-adjusted returns over the long term if you are looking to build a corpus. At the same time, regular withdrawal plans can provide you with periodic income if you so desire.

What are the 6 benefits of investing in a mutual fund?

Investing in mutual funds offers professional management, risk diversification, affordability, liquidity, convenience, and a variety of investment options, making it an attractive choice for many investors.

What are 5 benefits to investing?

Investing offers potential for wealth growth, beating inflation, portfolio diversification, passive income through dividends or interest, and tax advantages, making it a smart financial choice for many.

Why is it better to invest in mutual funds?

Investing in mutual funds offers professional management, risk diversification, affordability, liquidity, and simplifies investing for potential returns, making it an accessible and advantageous choice for many investors.

What are the 4 types of mutual funds?

There are various types of mutual funds, but four common categories are equity funds, debt funds, money market funds, and hybrid funds, each with distinct investment characteristics.

Disclaimer: Investing in mutual funds is subject to market risks. Please read all scheme-related documents carefully before investing. Potential returns from a mutual fund product are not guaranteed. Past performance is not indicative of future results. None of our articles are intended to and should be considered investment/financial advice from CoinSwitch.

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