The answer to the above question is YES. Mutual fund investments are a great financial tool if you understand them. Mutual Funds are one of the most efficient investment options in financial planning. Investing through mutual funds is a great way to build wealth and attain financial freedom. Investors get different options and can select the right combination based on risk appetite and goals. Mutual funds give multiple options to investors who want to allocate resources among different asset classes like equity, debt, hybrid, gold, etc.
Not everyone can become a successful businessman, however, one can be a partner to a growing and well-managed business by becoming a shareholder of the company. However, investing in equities is not an easy task and requires a lot of expertise and experience. Investing through equity mutual funds is a great way to build wealth as it is being managed by professionals having rich experience and expertise in financial markets. It is a long journey and investors need to be very selective and cautious in choosing the roadmap. Also, if investors want to have regular recurring income or those who are risk-averse can go with debt mutual funds. However, one needs to research and read about mutual funds before making a decision. As discussed, there are several types of mutual funds suitable for different kinds of investors such as aggressive, moderate, and conservative.
Investors must note that the past performance of a mutual fund does give us a fair idea of how efficient the fund manager was in picking up the right stocks at the right time. There is no guarantee that the fund will repeat its past performance in the future too. So, investors need to make decisions wisely and not depend solely on past performance. Usually, equity mutual funds as an asset class tend to outperform most of the other asset classes over the longer-term horizon, however, investors must focus on building a diversified portfolio while allocating resources in mutual funds. There are no short-cuts to creating wealth, however, a systematic and well-planned allocation in mutual fund investment can make the wealth creation process quite simpler. Moreover, you must be disciplined in your investment. SIP is an excellent way of investing periodically. With SIP you can benefit from the power of compounding leading to growth and wealth creation.
Nowadays it has become essential for every individual to adequately plan for his or her retirement due to rising inflation. Your retirement portfolio should earn inflation-beating returns which are not quite possible by only investing in PPF, post office savings, fixed deposits, gold etc. In order to earn a decent amount of returns along with safety, a permanent mutual fund portfolio predominantly in equity for wealth creation and in debt if one’s focus is on regular income is a must. Mutual funds as an asset class provide enough liquidity as compared to investing in physical real estate and other commodities and additionally and added tax advantage too.
Investors can save taxes by investing in Equity Linked Savings Scheme (ELSS) Mutual Funds. ELSS are known to be great tax-saving instruments under section 80C of the Income Tax Act, 1961. ELSS mutual fund investments qualify for deduction from investors’ taxable income under Section 80C of the Income Tax Act 1961. The maximum investment amount eligible for tax deduction under Section 80C stands at Rs 1.5 lakhs. Investors in the highest tax bracket can therefore save up to Rs 46,350 in taxes (Rs 1.5 lakhs X 30.9% tax + cess) by investing in ELSS mutual funds. The overall ceiling of Rs1.5 lakhs includes all eligible items like employee provident fund (EPF) contribution, PPF, life insurance premiums, NSC and ELSS mutual funds etc.