Investing in mutual funds can be a great way to diversify and increase your portfolio. With a long-term outlook, you can reap the rewards from the stock market without taking on too much risk. Whether you’re just starting or want to add an extra touch of security to an existing financial plan, investing in mutual funds is often seen as one of the most reliable paths towards achieving financial success and stability by equipping people with the power of compound interest. In this blog post, we'll review the advantages associated with investing in mutual funds so that you can makeinformed decisions about what could benefit your situation.
5 key benefits of investing in mutual funds
1. No need for a huge investment
Investing through SIP is the ideal way for individuals to build wealth for their future and to meet their financial goals. Not only does it offer the ease and convenience of automated investments, but it also does not require a hug initial investment. You can get started investing with a low sum amount of Rs500 every month. Depending on your financial situation and an increase IN income or savings, you can increase your instalment by opting for a Top-up SIP or Step-up SIP. This flexible method helps you to start small and grow your mutual fund investments at your convenience.
2. Power of compounding
The power of compounding helps investors to make their money work for them. It is one of the most powerful tools for long-term wealth creation, provided you invest early and regularly. Compounded returns are calculated using the XIRR(extended internal rate of return) method, and investing using SIPs can significantly amplify your returns over a long period. On several financial websites, you can find sophisticated SIP calculators that help you calculate the exact potential wealth accumulation in the future with compounding returns. With this easy-to-use tool, you get an insight into how regular investments can help you accumulate decent wealth in the long run and fulfil your financial goals.
3. Rupee cost averaging
Rupee cost averaging, also referred to as dollar cost averaging, is a popular investment strategy used by mutual fund investors. It allows you to buy more units when the market goes down and fewer units when the market rises. This helps reduce the investment risk as it averages out the purchase price of the equity fund units over a long period instead of being drastically impacted by short-term market fluctuations. Thus, it's a great option for those who are looking to diversify their risk but do not have sufficient funds to invest all at once. Moreover, you do not have to worry about timing the market or trying to guess where it's headed because your investments will be spread across different market levels.
4. Flexibility to invest
Investing Mutual Funds through Systematic Investment Plans (SIPs) provides maximum flexibility for investors to choose their preferred date of SIP deduction at their convenience. Investing a fixed nominal amount in a mutual fund every month helps build a corpus in the long run without shying away from financial discipline. A salaried individual can specifically choose to start the SIP at the beginning of the month while they have sufficient funds to invest. Still, varying frequency options such as weekly, quarterly and half-yearly are available too. Moreover, some Mutual Fund Houses offer Smart SIPs that allow investors to adjust their contribution based on predefined parameters like the P/E ratio or index level of the market. Thus, through SIPs, an investor is empowered to adhere to both financial discipline and the convenience of investing as per needs and prospects.
5. Higher returns
Investing mutual funds can be an excellent choice for those who would like to make the most of their investment. Individuals can enjoy higher returns thanks to professional fund managers and research analysts by investing a small amountvia SIP regularly. Not only do these managed investments provide much better returns than traditional savings vehicles such as recurring deposits or PPFs, but they also offer additional advantages in the form of tax benefits up to Rs 1.5lakhs per year under Section 80C of the Income Tax Act 1961. Taking advantage of these features makes mutual fund schemes an attractive option for those looking to secure their future financial objectives.
Those are the 5 key benefits of investing in mutual funds through SIP. If you are very new at investing, then you might not be comfortable with the word SIP. For those, here is what SIP is and the benefits of SIP.
What is SIP?
SIPs are extremely useful for those who want to enjoy the benefits of investing IN mutual funds but find it hard to commit large sums at a time. With SIPs, an investor can invest smaller amounts at regular intervals (monthly or quarterly)instead of one big lump sum altogether. This helps those with budget constraints to invest comfortably while also planning their finances smoothly. Additionally, this regular practice also allows investors to use rupee cost averaging; whenever the market is low, they can buy more units, and when it’s high, they can buy fewer units of the same fund. Mutual fund investment has become much easier and less intimidating due to these plans!
● Invest smaller sums at regular intervals
● Make use of rupee cost averaging
● Benefit from the expertise of professional fund managers
How can compound interest in mutual funds make you rich?
Compound interest can be a powerful tool to help you reach your financial goals when used in conjunction with long-term investment strategies. Mutual funds have the potential to really amplify the power of compound interest, and investors camrip the rewards with significant returns on their investments. For example, investing Rs 10,000 a month for 20 years and at a 15% rate of return per annum could yield a profit of Rs 1.5 Cr. If continued for another ten years, the returns could be reinvested to create additional profits - substantially increasing your wealth over the longer term. Overall, compounding yields beneficial results when you invest in mutual funds with a long-term horizon.
There are many benefits to investing in mutual funds, which include the potential forearming higher returns, getting diversification and professional management. However, it is important to remember that there are also risks associated with investing in mutual funds. Before investing, be sure to do your research and understand both the potential rewards and risks involved.
Your journey to financial freedom starts with investing, but it can be challenging. If you are new to investing, you might need some help understanding the basics and getting your money working for you. Thankfully, there is help available. Hiring a financial advisor or wealth management company can empower you financially by providing the insights and guidance that inexperienced investors need.
Wealth First Online is here to guide you along your investment journey too! Our certified financial planners offer tailored advice for all kinds of investors across India, so call us at +919979854966 to get started today.