Investment Basics

Why is Investing in Mutual Funds Important?

- Priyanka Megotia / 30-Dec-2020



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No matter what’s your next goal in life? Buying a new home? Pursuing higher education? Or that one dream vacation?

Investment is the key.

We as individuals always look for opportunities that can help us generate sustainable wealth, get regular returns and save taxes. While there are numerous ways to get started, investing in mutual funds direct plan always comes to your rescue.

If you are wondering ‘how’? Here is everything you need to know!


What is investing?

In the most straightforward sense, it is the process of buying assets that increase in value over time and provide returns in the form of capital gains. Whether you invest in stocks, bonds, securities, mutual funds, real estate, other items of value or a combination of all the above, the objective lies in persuading capital gains or profit.

It can be in the form of the increased value of the investment or terms of regular income. The main asset class you can always invest in to enjoy appreciation are equity-oriented Mutual Funds.


Why is Investing in Mutual Funds Important?

The world of investment changes dramatically from one month to the next and despite emerging, ever-changing market trends and fast-paced technological advancement, the importance of investing in mutual funds remains the same.

  1. Meet Your Financial Goals

    Throughout your life, your financial objective and needs change and your investment will need to keep pace with those changes. We all have certain financial goals in life and investing in mutual fund direct plan undeniably is the simplest and easiest way to achieve all our long & short-term goals.
    Mutual Fund investment fetches a higher rate of return when compared to savings which might earn a little interest depending on where you put it. The higher the return, the easier it is to put your money towards achieving your major financial goals such as buying a home, a car or starting your own business.

  2. Saving for Retirement

    Have you ever thought about what will happen when you stop working and after you retire? Well! Mutual funds can be great investment vehicles for retirement portfolios.
    Although it is a multi-step process that evolves, the only financial support that comes into play when retirement kicks in; is your investment portfolio inclusive of Tax Saving Funds, Low-Cost, High Risk – High Return and Multi-Cap Mutual Funds.
    Investing early is crucial for retirement planning, as it builds financial cushion, prepares a safety net, starts paying out regularly and provides potential long-term growth at later years of your life.
  3. Click here to read more on Retirement Planning


  4. Beat Inflation

    Inflation is said to be an investor’s nemesis. Are you saving money by burying it in jars in your backyard or by stuffing it in your bank account? The probabilities are that you will lose money to the rising inflation because the cost of living grows while the value of your money typically stays still. Whereas, mutual funds help your money grow steadily with time and is a major factor in reducing overall risk by mitigating any loss that occurs from the effect of inflation on the returns.
  5. Click here to read more on Effect of Inflation


  6. Attain Financial Security

    Investing is essential to good money management because it not only ensures present but also future financial security. You not only end up with more money in the bank but, with another income stream. No questions to ask, investing remains the only way to achieve both growing wealth and passive income.

  7. Accumulate Wealth Faster

    You work hard to earn each penny, whether to be spent on basics, luxuries or to save. But, is your money lying aimlessly in that locker, safe, or the bank? Investing in mutual funds will put it to work and allows you to accumulate wealth faster.
    Mutual Funds offer returns over a long-term period, and staying invested in the market has historically paid off in wealth creation. Money is money and when invested right will always grow. The older your money grows; the greater is the probability of achieving higher returns, therefore, it is important to stay invested in the market to create wealth over time.

  8. Tax-effective

    We as investors always lookout for the best way to make an investment that saves us from paying taxes. With the myriad of investment instruments out there for you to invest in to reduce your tax liability while also giving you an equal opportunity to grow your wealth, investing in a tax-saving instrument such as ELSS help you reduce your tax burden as the contribution you make to each of these schemes can be claimed as tax deductions under a specific section of the income tax act.
    Investing your money in long-term rather than short-term investments provides tax advantages on capital gains. While short term investment attracts Short Term Capital Gain Tax, long term investment attracts Long Term Capital Gain Tax.

  9. Enjoy Higher Returns (Mind the risk)

    Time is among the most valuable assets, an investor has. And, the longer you stay invested, the more rewarding it is. Investing puts your money to work for you, but with rewards comes risk. The rate of return on mutual funds is typically more than the interest you might earn in a savings account. Therefore, if you are someone who wants the chance to earn a higher return, investing is your go-to option.
Why investing your money into mutual funds pay out such high return?

The reason is the risk involved in investing your money in the market. The world of investment is volatile and with great risk comes greater return. However, during a recession or when the market falls the return drops to an extent where you may even lose your capital money.

Though there are potential risks involved while investing in mutual funds. Having a customized investment strategy, staying invested consistently over the long term and avoiding the short term fluctuations is the key to make the best out of it.

So, how should you go about it?

While the wide world of investment can seem tough! Knowing your purpose of investing is the best step to put your foot forward. As it further helps to choose the right investment approach & determine the exact amount you may need to invest in order to meet your financial goal.

Still, missing out on opportunities to attain financial freedom?
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