Do you remember the number of financial products in the market in 1980s? There were hardly few. Most popular of them were Post office deposits, PPF and other products which used to yield up to 12% p.a. returns. So, there was no need to compare, analyze and choose between various products. Be it good or bad, financial world has changed. More and more varieties of products have entered the fray to confuse us more. Now, it’s a headache for an average investor to pick a product from these. But, one product which has proved to be a long term winner is ‘Mutual Funds’. Here are five reasons why you should invest in mutual funds.
1) Professional Management
The first thing that a mutual fund offers is the service of professional management in the form of fund manager. He is an expert who actually works for you and invests the collected pool of money in the best products as per his strategy. If you are someone who cannot allocate time or do not have sufficient knowledge to master the stock markets, mutual fund does it for you.
(Also see: Pick your mutual fund smartly)
2) Wide choice of asset classes
Mutual fund is not about picking hot stocks. It is about long term investment. You can pick funds based on your risk appetite. A conservative investor can choose debt funds and diversification can be done through Gold funds. Wide varieties are available in mutual funds. You only need to choose your type of fund.
3) Lower charges
Typically, an insurance product charges you in the name of mortality expenses, fund management fees, asset allocation charges and so on. They amount to 3-4% or even more based on the policy you choose. Higher the charges, lower are the final returns. However, mutual funds typically charge 1-2% on the NAV, which is way lower than lot of financial products.
(Also see: Your fund’s annual cost)
4) Flexibility in investment
A fixed deposit is very safe to invest. It also gives good returns. But, you cannot make a monthly investment in it. Also, when you withdraw from it, you have to withdraw the entire amount. But, a mutual fund gives you the flexibility to invest regularly through SIP and also to withdraw in parts through SWP. Such flexibility makes mutual funds a great product for investment.
5) Ease of redemption
Mutual funds are not just easy to invest but easy to redeem too. Most of the mutual funds can be redeemed if held for at least 6 months or 1 year. There has to be a redemption request given to the AMC and then amount would be credited within 24-48 hours.
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