7 compelling reasons why mutual funds should be the first choice of young investors

Today’s financial landscape has changed significantly compared to our parents’ times. As a young investor, you don’t have the patience to visit offices, stand in queues, and fill those forms, do you?

Welcome to Mutual Funds. It ticks possibly every box that any young investor can ask for.

In this post, we share 7 compelling reasons why mutual funds should be your first choice when it comes to investment.

Reason # 1: Transparency:

Mutual funds are completely transparent products. As a regulatory requirement, mutual fund houses have to publish detailed information on various parameters.

These include your investment value, where your money is invested, the applicable charges/costs, fund managers’ details, return and risk parameters etc.

This information helps you to make an informed decision on a suitable scheme to invest in. This information also helps online comparison engines to show a detailed scheme-wise comparison & help you select the best funds.

Reason # 2: Super low-cost investment:

Unlike high-cost ULIPs, there is a minimal “fund management charge” in mutual funds. This small fee (around 1-2%) that you pay goes towards the mutual fund’s effort to manage your money.

Even better, you can purchase a “direct” zero-commission plan (available on our MF platform). This reduces your cost even further. And the saving in these fees ultimately helps increase your return from your investment.

Reason # 3: Helps reduce the risk of your portfolio:

Savvy investors know that investing is not only about returns. Risk management is equally important. And the best way to manage risk is by diversifying your investment across asset classes & having a precise asset allocation.

Mutual funds help you buy into various asset classes like equity, debt, gold, international funds, etc.

You can then decide on an asset allocation & then divide your overall money into various mutual fund schemes. Once every year, you can check the asset allocation. You can buy/sell the mutual funds to bring the ratio back to your ideal asset allocation in case of an imbalance.

This helps in two ways:

  • In rising markets, it helps you book profits in case of soaring markets.
  • In falling markets, it helps you buy at a low cost & reduces your overall investment cost.

Reason # 4: Super-flexible Investment

The beauty of mutual funds is their flexibility. This works in the following ways:

  • Except for ELSS and specific types of mutual funds, there is no lock-in period. You don’t force yourself to stay invested for a set number of years. You can invest & withdraw funds as per your money requirements.
  • As an all-rounder in cricket, you can use them to plan any financial goal – be it a child’s education, home purchase, or even your retirement.
  • It is effortless to close your investment in one scheme & shift money to another scheme in low performance.

Reason # 5: Helps you get into a regular savings habit:

As a young investor, you must get into a saving habit as early as possible in life. Otherwise, your initial golden years, which hold maximum saving potential, can get wasted.

Mutual funds provide a great solution to this problem. They help you get started for less than INR 500. And hence it is best for someone who has just started & wants to test the waters.

Also, mutual funds help you to get into a regular saving habit. You can invest via SIP, whereby your investment gets automatically deducted from your bank account every month. This helps put you on the path of regular savings. It also helps you to average out the cost of your investment over time.

Reason # 6: Helps to defer the impact of taxation:

This is a less known advantage of investing in debt mutual funds than other avenues like fixed deposits & bonds.

In fixed deposits, the interest income is taxed as “Income from other Sources”, & it is taxed every year. As compared to that, in mutual funds, the income is taxed as capital gains. This means that the tax is payable only when you sell the units of the fund.

The longer you stay invested in the fund from a tax perspective, the tax impact gets postponed. The benefit of indexation means that the tax hit is much less & manageable than fixed deposits.

Reason # 7: Invest online from the comfort of your home:

Mutual funds are a boon for busy newbies who have tight office schedules and busy social life. Technological advancements have transformed the face of the financial industry.

As a result, investing in mutual funds is entirely online, paperless, and seamless. You can invest with a few clicks from the comfort of your home. You can also do transactions like new SIP, switch, or withdrawal online. Great, isn’t it?

Conclusion

Mutual funds are a boon for young investors who are new to investing & need simple, hassle-free & cost-effective investment solutions. More important than anything, they help young investors to save regularly & make a confident start to their financial journey.

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