You may have come across the “mutual funds sahi hain” advertisements by the Association of Mutual Funds in India (AMFI) and wondered what mutual funds were. The objective of mutual funds is to provide consistent long-term returns as well as diversify the risk. Mutual funds come in a variety of forms, depending on the investor’s risk appetite and time horizon. Here are five shocking facts about mutual funds:
1. Mutual funds are for everyone
Investing in mutual funds is a great way to start investing. They are professionally managed by fund managers who are experts in the field. Before making any decisions, they conduct in-depth market research. You can invest in mutual funds if you do not know how or don’t have the skills or experience to invest in the stock market.
2. Mutual fund investors can begin with 100/-
The mutual fund is an accessible and affordable financial instrument. Investors can start investing with as little as 100/-. Mutual funds have enabled young college students and even young working professionals to start investing from an early age. By investing in mutual funds in this way, young investors can form good financial habits and get good returns in the future. SIPs are one of the most popular ways to invest in mutual funds.
3. An instrument to save tax
Investors can save on taxes while investing in mutual funds. Under Section 80C of the Income Tax Act, 1961, equity-linked saving schemes or ELSS mutual funds offer a tax rebate. As an investor’s salary increases, they may decide to save more tax. That’s when ELSS mutual funds come in handy. Over the long term, ELSS mutual funds will allow investors to save taxes while earning good returns.
4. Power of compounding - “He who understands it, earns it; he who doesn’t, pays it.”
For salaried professionals and young investors, systematic investment plans or SIPs are an excellent way to start investing. With a SIP of 500/- per month over 30 years and an average growth rate of 12%, you can earn almost 18 lakhs. Learn why even Albert Einstein called compounding the eighth wonder of the world here.
5. Dividend Mutual Funds
It is possible to invest in different types of mutual funds. Dividend mutual funds are one such type of mutual fund. Dividend mutual funds invest primarily in stocks that provide consistent dividends. An investor who invests in dividend mutual funds receives both constant long-term returns and short-term dividend payouts by investing in one.
