Source/Contribution by : NJ Publications
Mutual Funds for wealth creation:
If you'd ask about that one thing that all investors want from their investment in return, is Returns, the more the merrier. And Equity MF is the undisputed king in terms of returns over long periods of time. Equity Mutual Funds offer an immense potential to generate wealth on back of the underlying asset class: Equity. The last 5 year, 10 year and 15 year returns of the average of all Diversified Equity mutual fund schemes are 19.65%, 10.88% and 21.56% (Source: NJ Research).
Mutual Funds for Saving Tax:
Every year, we look to invest for saving tax, and quite often we fall for products which do save tax, but do not generate enough returns, and we generally get stuck with the investment for years because of the long lock in periods. Mutual Funds offer an excellent opportunity to investors for saving tax, in addition to the stupendous wealth generation potential it offers, as narrated above. An investment of upto Rs 1.5 Lacs in a year in ELSS MFs are exempt from tax u/s 80C of the income tax Act. So an investor can save tax of upto Rs. 46,350* a year by investing in ELSS schemes, *(For a resident individual falling under the 30% tax bracket, for FY 2018-19). Talking about returns, the last 3 year, 5 year and 15 year returns generated by the average of ELSS schemes are 10.08%, 18.93% and 21.62% respectively (Source NJ Research). And lastly lock-in, ELSS has the least lock-in period across the tax saver category, of just 3 years.
Mutual Funds For Emergencies:
People save money for the uncertain future, you don't know what's going to happen next, there can be punctuations in income, expenses uncalled for, medical emergencies, and the like. People usually maintain some balance in their saving bank accounts for emergencies, saving account is the preferred choice because of the liquid nature of the same. Mutual Funds offer an alternate to investors to cater to emergencies, in the form of Liquid Funds, wherein investors get liquidity as well as slightly better returns than saving accounts.
Mutual Funds for Regular Income:
People generally invest in fixed deposits with interest payout option to get a regular monthly income, or buy a property with the view to get monthly rental income. However, in the former case, the interest rates are too less and at times investors end up eroding the principal value of their investment; in the latter case, 1. The rental yield in India is in the range of a meager 2-3%, and 2. Property prices have also remained flat lately. Mutual Funds offer a better alternate to investors seeking regular income, in the form of Balanced Funds with SWP option. Here, the fund comprises both debt and equity, wherein equity works to boosting the returns and debt works to protecting the downside. So, assuming an investor withdraws at the rate of 8% a year, and the returns are 12%, so the extra 4% gets added to the principal, after providing for the monthly income.
Mutual Funds For One-time investors:
An investor can invest a lump sum amount in a Mutual Fund scheme, like people invest in FD's. You can invest in a single MF scheme or in a mix of schemes or in a diversified scheme or in a hybrid scheme, depending upon your investing requirements.
Mutual Funds For Regular investors:
Mutual Funds offer an incredible opportunity to investors to invest for the big goals of their life by taking small steps. Through the SIP mode, an investor can start investing with an amount of as small as Rs 500 a month. SIP has made investing easier, the investor has to pay a small amount each month, so gradually over long periods he actually invests a substantial sum of money and because SIP makes volatility work to the benefit of the investor, it has helped investors create massive wealth over time.
Mutual Funds for Life's Goals:
Whether it's about your Retirement goal which is lined up 20 years ahead, or it's about your daughter's higher education after 5 years, or about buying a car after a year, or may be parking your extra cash for a day, Mutual Fund caters to it all. Because of the varied options of investing available with respect to the underlying asset class, Mutual Funds offer an opportunity to actualize the life goals of all investors with different risk appetites and investment horizons.
For Estate Planning:
Lastly, Mutual Fund is not just an investment avenue for your life, it also aids you in passing on your wealth to your next generation. Unlike in the case of your other assets like property or gold, where estate transfer involves a lot of hassles, Mutual Funds offer a very simple process for the same. The joint holders of the investment or the nominees have to simply submit the required documents to the AMC and get the units transmitted in their names.
To conclude, people generally associate Mutual Funds with stocks, but the reality is you do not have to look beyond a Mutual Fund for any of your investing needs. Mutual Funds offer an alternate to almost all investment products and that too with superior returns in most cases.