Investors today are making a mindful effort to move from bank fixed deposits (FD) and other small saving investment options to higher-earning investment options such as stocks and mutual fund investments. What may be the reason behind this shift? Well, there can be several reasons that support this hypothesis – increase in financial literacy rates among individuals, increased risk profile exhibited by investors, falling deposit rates, etc. In this article, we will focus on why several investors are moving away from traditional forms of investments such as bank deposits to relatively newer investment option – mutual funds.
For several generations, traditional forms of investments such as bank fixed deposits, savings schemes, etc. have been perceived as ‘safe bets’ by investors. However, with growing awareness, financial literacy, and investment needs, people are looking at these ‘safe bets’ with a new and different perspective. While an investor enjoys assured and fixed returns on fixed-income investments such as fixed deposits, there are other aspects of these investment options that make them less attractive among retail investors. One of the biggest one being potential of earning significant returns is slim. Let’s look at some reasons why you may consider opting for mutual funds over bank fixed deposits.
Why should you invest in mutual funds?
Here are a few reasons why an investor might consider investing their funds in mutual fund investments:
- Inflation-beating returns
Mutual fund investments have the potential to generate inflation-beating yield to investors. If history is any proof, mutual fund investments help investors generate double digit returns when invested for a prolonged duration.
Almost all financial advisors advise their investors about the benefits of diversifying their investment portfolio. Diversification helps to offset the losses arising by exposing your investment portfolio to a particular type of asset class or investment.
- Professional management
Another benefit enjoyed by mutual fund investors is the professional management it offers to investors. When you invest in mutual funds, your investments are managed and handled by a team comprising of analysts, fund manager, and researchers. A fund manager is a mutual fund expert with sufficient knowledge and expertise about the working of mutual funds.
- Well- regulated
All mutual fund investments are heavily regulated and monitored by the Indian capital markets regulator and watchdog – SEBI (Securities and Exchange Board of India). This helps enforce all fund houses to follow certain mandates laid out by the SEBI and make mandatory disclosures about their portfolios to the SEBI on a regular basis.
- Ease of investment
It is quite easy and seamless to allot your money in mutual fund investments and begin investing in the markets. Thanks to the advanced technology, and increase in the use of online wallet, an investor can invest in mutual funds online from the comfort of anywhere in the world.
- Tax benefits
An investor investing in mutual funds enjoy certain tax benefits associated with a particular type of mutual funds. For instance, tax-saving mutual funds, also known as ELSS (Equity-Linked Savings Scheme) enable an investor to enjoy the tax deductions under Section 80C of the IT Act, 1961 up to Rs 1,50,000 every financial year.
Now that you have understood the benefits of investing in mutual funds, it may be a good idea to compare mutual funds against several parameters to choose a fund whose objectives are aligned with your investment needs. Happy investing!