When you think of investing in mutual funds two things often struck your mind: ‘returns’ and ‘other benefits’. Mutual Funds have become one of the most popular choices of investment in India. A mutual fund is type of investment that pools the money of the investors together into one investment managed by highly trained professionals. Mutual funds can be oriented towards different holdings; they can invest in stocks, bonds, cash and/or other assets. There are multiple benefits that an investor can reap by investing his money into mutual funds as compared to other choice of investments.
One of the most leading advantages of investing in mutual fund is the diversification of the corpus into various sub-securities known as holding. A fund manager professionally manages the mutual fund by investing strategically in fixed assets to generate the highest return for investors. A Mutual fund normally invests in various industries thereby minimizing the risk. This is one of the most important principles of investing.
For example: a particular mutual fund might have holdings in various industries such as banking, automobile, FMCG, pharmaceuticals, steel and infrastructure, gas or such other industries thereby diversifying its investments into various sectors of economy and reducing the risk. So, If all your money was invested in one particular company and that company failed then you have lost all your money. However, if you had investments in many companies and a single company fails within your portfolio of many companies, then your loss is constrained. Mutual funds give you access to a diversified portfolio without having to buy and monitor dozens of assets on your own.
The Income Tax Act 1961 offers a lot of deductions which an individual can avail while paying his annual tax to the government. Section 80C is one of the sections which allow deductions to the assesses. It allows various expenses made towards contribution to eligible funds. Fortunately, mutual funds are also an eligible investment option which means by investing in mutual funds an individual is allowed to claim deduction under Section 80C of the Income Tax Act. Equity Linked Savings Scheme (ELSS) is one of the most popular tax-saving options in India, owing to its higher returns and the shortest lock-in period of three years among all Section 80C options. You can invest as much as you want under this scheme subject to a maximum tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
A lot of investment options are available in the market but the thing which makes mutual funds so popular is affordability. An individual can start investing into the funds by contributing a small portion of his earnings. You can start a mutual fund SIP for a cost as low as INR 500. Since, SIPs start at such low price it helps you to invest petty savings leading to larger consolidated investments.
So in short, you can have a diversified mutual fund portfolio by investing as low as Rs 500 a month. You also have an choice to invest either as a lump sum or as a systematic investment plan (SIP). However, when compared to lump sum investments, a SIP is capable of lowering the overall cost of investment while unleashing the power of compounding.