The Mutual Funds Sahi Hai (Mutual Funds are a right choice) campaign, an initiative from AMFI to provide information on mutual funds investment and mutual funds basics has encouraged many investors to begin their investment journey, enabling them to mobilise their savings into wealth-creating assets. Mutual funds are now a primary choice for many first-time and experienced investors. This is reflected in the steadily rising AUM and folios of the industry over the past few years.
Here is why investing in Mutual Funds can be a right choice:
- Mutual funds are managed by experienced professionals, known as fund managers, who utilise various research and analytical tools to create an optimal portfolio.
- SEBI has set stringent regulations for asset management companies, putting investors’ interest at the fore.
- Historically, mutual funds, particularly equity-oriented funds, have outperformed conventional investment options such as bank fixed deposits and gold over the long term. This makes them suitable for long-term wealth creation and for achieving various financial goals.
- Mutual funds enjoy high liquidity, allowing investors to buy or sell units any time as per their preference.
- Mutual funds invest in an array of securities to minimise the concentration risk towards a single stock/theme/sector. Thus, investors benefit from diversification thereby lowering the overall risk.
- Investors in mutual funds may also enjoy tax advantage as investments in certain sub-categories such as ELSS are eligible for deduction under Section 80C of the Income Tax Act.
But along with the benefits, there are several risks too. Hence, not all mutual fund schemes are sahi for you.
Apart from the inherent risk of investing in mutual funds such as market risk, liquidity risk, credit risk, macroeconomic risk etc., there is also the risk of not choosing the right mutual fund schemes as per your financial objectives. The degree of aforementioned risk varies from category to category and even at the scheme level. This makes it vital to choose the right scheme.
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Investors often assume that investing in a certain top-performing scheme/s may be the right fit for the portfolio.
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