Who should opt for mutual funds?

The popularity of mutual funds has soared over the last few years, with the AUM (assets under management) of the Indian mutual fund sector growing five fold over ten years. Disciplined mutual fund investing can help you achieve both short-term and long-term goals.

What makes mutual funds ideal for you?

You should invest in this financial instrument if:

You have just started your investment journey

Investing in stocks can be beneficial if you have the requisite knowledge. However, if you don't, mutual funds are a better alternative. Mutual funds invest in a range of stocks, with a professional fund manager at their helm. The fund manager takes calls on stocks to be picked and dumped as per the fund's investment objective.

You want to save consistently

Mutual funds can help you save money and prevent impulse spending. Investing in mutual funds through systematic investment plans is a disciplined way of saving and investing.

You believe in not putting all your eggs in one basket

An equities portfolio with a diversified mix can minimise the volatility of your investment. You can build a diversified equity portfolio with mutual funds since they invest in a range of stocks.

You plan to avail the benefits under Section 80C of the IT Act

It is possible to get a tax exemption worth ₹ 1.5 lakh under Section 80C of the tax regime. It is prudent to invest in ELSS (equity-linked savings scheme) mutual funds if you want to maximise your benefits using this section.

[Also Read: Know the difference between open-ended and close-ended mutual funds]

You are making a long-term investment

As an investor, you need to understand that ‘time in the market’ is more important than ‘timing the market’ when you are dealing with equities. The SIP offered by mutual funds make it easy to do that and get the most out of your equity mutual funds. Investing in mutual funds can help you benefit from the power of compounding over the long term. The long-term gains from investing in equities can be significant if a person has long-term goals, like saving for their children's education or investing for retirement.

You prefer playing safe

Although markets are subject to short-term shocks, mutual funds have proven to provide better long-term returns than traditional investment approaches. Even senior citizens, who prefer avoiding volatile markets, can create their withdrawal strategy with mutual funds, unlike NPSs and other annuities.

Using mutual funds, seniors can create an asset allocation portfolio that meets their individual needs. Debt Mutual Funds are a great place for senior citizens to park their money for the first 5 years. Balanced Mutual Funds can be used to invest the money needed for daily expenses over the next 5 years. Equity Large Cap Funds can be invested with funds that will be required after 10 years.

Conclusion

Mutual funds can help build a corpus to meet various life goals, but it is vital to choose a mutual fund that is aligned with your goals as well as risk tolerance. Make sure you check the expense ratio of the fund, as a fund with a high expense ratio can reduce your returns substantially. In case of any doubt, it is best to consult a neutral and independent financial advisor to analyse the fund's long-term performance.

You can consider investing in Axis Bank mutual funds, consisting of various equity mutual funds and debt mutual funds.

An equity and equity-related portfolio diversified across market capitalisations is intended to generate long-term capital appreciation. Nevertheless, the scheme cannot guarantee that its investment objective will be met.

Mutual Fund investment also gives you an option in case you need emergency funds through a loan against securities. Know more online.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.

Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.