Post demonetisation, there has been a structural shift in investment pattern of investors who have moved from physical assets such as gold and Real Estate to financial assets.
In the last one year itself, AUMs (assets under management) have risen and presently at an all-time-high of Rs. 20.40 lakh Crore. One glance at SIP (Systematic investment Plan) books reveals an astonishing Rs. 5,200 Crore SIPs per month. This proves a clear shift towards mutual funds, mainly driven through SIP route.
Ratings agency Moody's sovereign rating uptick' from "Baa3" to "Baa2", is one factor that has accelerated and changed the market' outlook.
Amid such times, it certainly is easy for investors to fall prey to high return expectations. But lets not forget that this is just a phase and the market may have its ups and downs.
Making profits, hence certainly is not like a quick two-minute noodles.
For investors, some of the avenues such as Direct equities, Insurance products, Debt products (Fixed Deposits, bonds), Gold, etc, are certainly open and secure, but Mutual Funds remains one of the best investment options to achieve financial goals. And here are the top 5 reasons why you should invest in them.
Variety of Schemes: Mutual funds offer a wide range of schemes with different investment objectives. To achieve short term goals, you may opt for short term debt funds or liquid funds. Debt funds suit the need for capital protection, stability and steady returns. Equity funds are for capital appreciation and are suitable for long term wealth creation. There are Equity Linked Saving Schemes that are for tax planning.
Diversification: Unlike individual stocks or FD, mutual funds invest across different stocks and bonds/deposits (in case of debt funds). This diversification helps in achieving better risk adjusted returns.
Risk v/s Returns: As an investment instrument, mutual funds offer schemes that are aggressive, balanced & conservative in nature, which makes them suitable for investors of different risk profiles. Hence, depending on your risk appetite you can choose the fund suitable for investment.
Professional Managed & Well Regulated entities: To invest in direct equities, one needs to dedicate an incredible amount of time studying the macro and micro environment, along with the company specific fundamentals. Mutual funds are managed by professional fund managers. These fund managers along with their in-house financial analysts and expertise are well-positioned to take well researched investment decisions. Further, Mutual Funds are well regulated and come under the purview of SEBI.
Suitability: Investment time horizon is one of the most important factor before taking an investment decision. Mutual funds provide a variety of options to suit one's need. For long term goals i.e. goals with an investment time horizon of at least 5 years (such as retirement or planning your children's future goals), one should invest in equity mutual funds. Similarly, one can opt for pure debt funds and equity oriented balanced funds (have 35% allocation to debt, which makes them less volatile than pure equity funds) for medium to long term goals. To provide for short term goals such as vacation, contingency, etc one can invest in liquid and arbitrage funds.
Also, as an investment strategy, in-order to achieve your goals, you can also set aside and save a portion of your monthly income and start fixed monthly investments - SIPs (Systematic Investment Plan) in mutual funds. This helps in cost averaging in the long term as your SIP continues in bull as well as bear markets.
Mutual Funds certainly is a great option to boost your investment bets. But have a long term growth horizon, and beware of investment bets such as ZIP-SIP, since these could be misleading and and detrimental to your financial health. Because like quick noodes which is a potential health hazard, misleading' quick investment options are traps, detrimental to your financial health.