Benefits of investing in Mutual Funds

  • Posted By : reliancesmartmoney.com
  • Wednesday Oct 10, 2018

You might have seen the Mutual Funds advertisement on television where, you hear about mutual funds helping their investors achieve their dreams. Should you choose mutual funds for your investments, is something that you should decide for yourself. Let’s discuss why you can consider mutual funds as an investment option to fulfil your dreams.

What are mutual funds?

Mutual funds are investments made in a basket of securities (equities, bonds, currencies and treasuries, etc.), for pre-determined objectives (goals like buying a house, building wealth and retirement corpus, etc.), keeping in mind the associated risks, returns and time period.

These funds are professionally managed by fund managers. Here, investors entrust fund managers with a basket of funds, which are then invested in securities. The generated returns are then passed on to the investors.

Why should you invest in mutual funds?

  • Managed by Professionals: 

    Mutual funds are managed by experienced fund managers, with expertise and robust research experience in market dynamics. These professionals carry out required research and monitor the markets. Their market expertise can help you get handsome returns on your investments.
  • Economical:

    You can start your Systematic Investment Plan (SIP) with an amount as minimal as Rs.500 per month.
  • Convenient:

    Online investment platforms, all in one account and many other digital features have made the investment process seamless. Having one account for all mutual funds makes investment tracking easier. You can now refer to digital features where you can compare various funds available. Some features also recommend the right mutual fund to suit your goals.
  • Better returns than gold or fixed deposits (FD): 

    Mutual Funds give more returns than gold or FD over a period of time.

The SENSEX was introduced in 1986. Assume that you had invested Rs.1000 each, in Gold, Fixed Deposits, and in an index mutual fund (a type of mutual fund that tracks SENSEX or Nifty), 32 years ago. In July and August 2018, your approximate investment value would be as follows:

Investments Invested Money
in 1986
 
Returns/Value
as in July 2018
 
Returns/Values
as in August 2018
   (in Rupees)
 Gold  1,000  25,500  28,500
 Fixed Deposits  1,000  15,000  15,520
 Index mutual fund  1,000  3,55,000  3,56,000


Calculations:
  • In 1986, with Rs.1000, you would be able to purchase approximately 5 grams of gold. Therefore, the present values are calculated on the basis of the current value of 5 grams of gold.
  • Value of fixed deposits and Index Mutual fund was calculated using the compounding calculator. For fixed deposits, the average interest rates for 5+ year deposits in 1986 was taken and its compound interest was calculated till the year 2018.
  • For index mutual funds, the compound interest was calculated based on the percentage change in the SENSEX from 1986 to July 2018 and August 2018.
  • Gold rates were referred from: https://www.bankbazaar.com/gold-rate/gold-rate-trend-in-india.html?ck=Y%2BziX71XnZjIM9ZwEflsyDYlRL7gaN4W0xhuJSr9Iq7aMYwRm2IPACTQB2XBBtGG&rc=1
  • Fixed Deposit Rates referred from: https://rbi.org.in/scripts/PublicationsView.aspx?id=12765
In terms of percentage, the 32 years approximate average annual return is as follows: 
Investments  Average Annual Return in 32 years  
 Gold  8.50%
 Fixed Deposits   10.50%
 Index Mutual Fund  18.50%
*Calculated on the basis of the previous table.

Tax Benefits: 

Mutual funds not only help you in building wealth but also provide tax benefits. In ELSS mutual funds, returns on the invested amount are higher than that in other tax saving instruments like PPFs, FDs and NSCs. Let’s compare the current interest/return rates of all these tax saving instruments. On your investments, Public Provident Fund (PPF) and National Savings Certificate (NSC) provide interest of 7.60%. FDs provide an interest of 6.25% on your investments. However, an investment in Equity Linked Savings Scheme (ELSS), a type of diversified equity mutual fund provides a return of 18.24% according to the current rates.

Diversification: 

Mutual Funds come with built-in diversification. Here, you can diversify your portfolio by investing in a basket of securities like equities, bonds and commodities etc. This helps you get the best of each of these securities while managing their risks. Even if some stocks in your basket are not performing well, other outperforming securities can make-up for them.

No matter what your goals are, mutual funds always have something to offer. reliancesmartmoney.com is the one-stop shop for all your investment needs; where you can pick the right mutual fund for you. Thus, if you are looking for convenient, economical, professionally managed, quick building and diversified investment solutions, mutual funds are the right funds for you. Start investing in mutual funds now to realize your goals and achieve financial security.

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