Mutual Fund Investments: The Smart Choice for the Beginners

“ Retail Investors continued to invest through the mutual fund route in February, despite a volatile market.”

Source -TOI

Mutual fund investments have become a primary source of investment for beginners, even when the market is in bad shape. The AMFI data further strengthens this fact. It recently released a report showing that monthly gross inflows through the SIP route have been rising over the last few years while equity investment has declined to 26% on the month.

Let’s jump in and evaluate why mutual funds remain the most likable for beginners and what they are.

What is Mutual Fund Investment?

Mutual Funds Investment spread out risk. They allow you to invest in a diversified pool of investments at a manageable cost. Starting from stocks to bonds to ETFs to government-backed funds, you can gain exposure without risking too much money.

Benefits of Mutual Fund Investment

[1] Uses the Rupee Cost Averaging Method

We all know that the market is facing volatile shifts, which has caused panic among investors. Most investors have sold off their stocks and are looking for conventional modes of investments like Fixed Deposits and Recurring Deposits. However, amidst this uncertainty, mutual funds remain the most popular investment method because they follow the Rupee Cost Averaging Strategy. As per the strategy, the investor has to invest a fixed amount after every interval, irrespective of the market conditions. This fundamental principle smoothens the creases of the market, thereby reducing the average cost per unit with time.

[2] Mutual Fund Investment Protects from Market Disruptions

The beauty of these investments is that they work well even when market conditions are not stable. They help investors generate wealth through a disciplined approach. For example, an SIP, or Systematic Investment Plan, forces the investors to invest a fixed amount even if market fluctuations are high. Mutual fund advisors buy large units or funds when the market dips, and when it rises, they buy small units, averaging the cost over time.

[3] Stay Consistent

Mutual funds are an excellent choice for new investors in India. They help investors understand the market and how it reacts and give them the power of consistency. For example, when investing through SIP, the investor has to invest a particular amount; this ensures that you do not miss any opportunity because of market volatility. When equity investors are pulling back their investments, investing in mutual funds through the SIP route enables you to stay focused and gain returns in the long run.

[4] Start Small

The biggest fear of new stock market investors is that they cannot afford to lose a lot of money. Leveraging this concept, mutual funds were created. They let you invest an amount in a diversified portfolio, according to your pocket, thus giving investors peace of mind. You can invest through the most trusted route, SIP, or ELSS schemes and get the most out of it.

[5] Expertise

Investing in the stock market requires a degree of expertise and experience. Without it, you might fall hard and lose your hard-earned money; the major benefit that these funds offer is you can take a back seat and let the advisor handle the complexities of picking the stocks or instruments and give you desired returns or dividends. The fund managers are qualified and can help you in this process.

[6] Liquid Investments

Another reason new investors prefer them is that they are liquid, especially open-ended mutual funds. These funds do not have any fixed maturity period; the investors can buy and sell as per their NAV. So, the investors can redeem the units anytime. However, a certain fee is charged when you withdraw before the set period. 

Precautions While Buying Mutual Fund Investment

Mutual funds instill hope in your mind, even if you are a new investor. However, you are advised to find the right brokers in Mumbai. They will help you assess your risk appetite, select portfolios, evaluate funds' past performance, and clarify the fees so you don't feel overburdened.

Mutual fund investments are not a flashy or quick way to earn tremendous returns from the stock market, but the strategy behind them makes them powerful. It allows you to stay invested from a long-term perspective and let you maximize your returns. So, while other investors stay fearful when the market is facing a decline, mutual fund investors can take advantage of it, ensuring that you are consistently in the game no matter how the market reacts.

Start Your Investment Journey Today!

If you're ready to explore the world of mutual fund investments and secure your financial future, SYKES & RAY EQUITIES is here to guide you. Whether you're a beginner or looking to diversify your portfolio, our expert advisors will help you make informed decisions. Visit SRE today and take the first step toward smart investing!

FAQ

Q-1: What Mutual Fund Investment Should I Consider to Choose?

Selecting a mutual fund depends on your risk appetite and risk tolerance capability. If you are a beginner, we suggest you hire a stock broker who can assist you in finding a low-cost, low-risk, diversified fund with maximum returns.

Q-2: Are Mutual Fund Investments Tax Deductible?

Yes, certain funds are tax deductible under Income Tax Laws. For example, Equity-Linked Savings Schemes allow you to claim deductions up to 1.5 lakh per financial year and have the shortest lock-in period of 3 years. There are many more to count on, like equity mutual funds, debt mutual funds, and hybrid funds.

Q-3: How Does Mutual Fund Investment Work?

Unlike traditional investments, investors do not have to manage their portfolios. An expert mutual fund advisor will do so.  They will understand your risk appetite and consistently invest funds, aiming for the mentioned fund objective. If not satisfied with the result, you can sell the funds at the current NAV.

Q-4: Where Should Mutual Fund Investment Be Shown in ITR 1?

As a salaried person, you should report your investment correctly in ITR 1 under section 80C, but if you earn capital gains from it, you should file it in ITR 2.

Q-5: Are the Returns Subject to Market Fluctuations?

Mutual fund returns and risks are subject to market crashes. Any uncertainty in the market will hamper your returns and might drain the objective; however, hire an experienced broker who can help you handle and overcome it.