Mutual funds are one of the best long-term investment plans capable of providing high returns. But it is not necessary that everyone knows about them and their benefits. If you, too, are planning to invest in the best mutual funds, you must know first know what is mutual funds and then go through their types and importance. Given below is a detailed explanation of what is mutual funds, the major reasons to invest in them, and the major types of profitable ones.
What is Mutual Funds, And How Does It Work?
Through a mutual fund, fund managers accumulate investments from several investors and purchase securities. This purchase of products is at the sole discretion of the fund manager, and the investor can only instruct the preferable sector and not any particular shares. Through mutual funds, a fund manager purchases share or securities that they think will be profitable in the future from their experience and several factual data.
The major benefit of investing in mutual funds is that they can provide returns higher than regular equities. It is because a stock market investor has limitations of knowledge, experience, and time, they can be devout towards market research, especially if trading is not their primary employment. But a fund manager has several resources and a team of professionals which help them make calculated decisions on the preferable stocks, when to enter and when to exit the trade.
But high returns are not the only reason you should invest in mutual funds. The next section will tell you the biggest reasons to invest in the best mutual funds.
5 Major Reasons to Invest in Mutual Funds
After having a clear understanding of what is mutual funds and how it works, you must also know why investing in them is ideal. Below are the top five reasons to invest in mutual funds rather than any other investment schemes.
Investment Through Little Contributions
The best mutual funds can provide high returns even with smaller contributions. Some SIP investments in mutual funds allow as low as INR 500 per month. Thus, making an investment into mutual funds possible for all people without restrictions on the income or money availability after expenses.
Mutual funds have the quality of the best investment scheme, a diversified portfolio. Having a diversified portfolio reduces the chances of losses and guarantees returns even if one of the products doesn’t perform as predicted.
Liquidity of invested capital is necessary when you have limited savings. Mutual funds provide this liquidity of money because most mutual funds come under open-ended mutual funds. Open-ended schemes allow exiting a trade at any time, and the investors also get the total returns gained to date.
Tax savings are also another reason why people prefer mutual funds. Investments in Equity-Linked Savings Schemes (ELSS), a category of mutual funds, are eligible for a tax relaxation for up to INR 1,50,000 per year as per Section 80C of the Income Tax Act 1961.
Mutual funds also have several types making it easier for investors to choose the best suitable funds for themselves. The following section briefly discusses this topic.
Types Of Best Mutual Funds for Investment
SEBI provides the operating guidelines for every mutual fund-providing agency in India. These guidelines help the investors in protecting their funds from fraud or losses. Based on SEBI guidelines, most mutual funds come under the open-ended and close-ended categories. But still, there are several types of mutual funds which cater to the different requirements from a mutual fund for different people. Here are three main types of mutual funds that provide the highest returns.
Equity Or Growth Schemes
Equity schemes invest money only in the stock market by purchasing shares. Thus, they can yield the highest possible returns, similar to stock market investment.
Money Market Funds or Liquid Funds
These are debt instruments but have much lower risks. So, several investors invest in these funds to get almost assured returns without any losses. This is also why it is the second-best mutual funds investment.
Fixed Income or Debt Mutual Funds
These are also low-risk funds where the fund manager purchases securities and bonds from the government. So, they have more reliability in comparison.
We hope we’ve now answered your queries regarding what is mutual funds investment, and which are the best mutual funds types. Mutual funds investment teaches you the importance of having a planned financial future and the best method to obtain it. If you still don’t have such a plan, you must start looking for one as it is the only way you can remain independent, even if you are capable of earning income or not. So, look for the best mutual funds plans from the best companies right away to secure your future and live a financially peaceful life.