This is, in fact, a significant question to ask and the article aims to throw light on the various factors that make people invest in mutual funds. Of course, nobody trusts anybody easily when it comes to money and this is about giving a large sum of money to somebody for investing on your behalf. My God! It needs careful thought.
With the growing number of mutual funds in the market due to the rising number of people finding it attractive, it is difficult for a beginner to make a choice. Yes, you can consult magazines and check online investment websites, but as an entrant new to the investment world, it is not an easy game to understand it all. Let us discuss the various factors that influence the investor’s decision,
- Returns and the associated risk
No doubts, investing in markets are one of the best ways of maximizing the return on investment. But most people lack the expertise needed to choose their investment portfolio for themselves and do not always have enough capital to diversity it enough to minimize the risks possible. That is when mutual funds make the weather so convenient. Somebody smarter than you collect the money from all the interested investors and invests it in multiple companies, in multiple kinds of the sector and across a wide range of securities. People with limited income especially find mutual funds attractive rather than entering directly into the market.
- Educational qualification
Research shows that people who are educated tend to favour investing in mutual funds. It suggests that as the people become more aware, they tend to be more inclined towards mutual fund investment compared to people who aren’t educated enough. For the latter, the mutual fund is an especially risky avenue for savings appreciation.
- Lack of time
Close to 95 million people are investing in mutual funds as per the latest data. Statistics show that people, even when they know about markets, prefer investing in mutual funds for the convenience it offers. It takes away the hassle of regularly monitoring your investments. It is an easy route to higher than bank and fixed deposit returns, saves a lot of time and a lot of worries.
- Tax benefits
A lot of mutual funds offer a tax benefit to people under section 80C. This makes it an attractive proposition for a lot of people. Taken effectively, the return on a good mutual fund can exceed CAGR 25% if the income saved in taxes is accounted too.
While mutual funds make you carefree since your funds are in the hands of an expert managing your investment portfolio, you get regular updates on its performance with details of all the sectors and companies that the funds have large holdings. This makes thing transparent and anytime the fund doesn’t meet the expectations, the investor is free to withdraw its money (mutual funds usually have high liquidity) and put it into a different fund. It’s as easy as that!
- Other factors
Research shows that males have a higher tendency to invest in mutual funds. Married females have a higher tendency to invest in funds as compared to males. Mutual funds also have less transactional costs as compared to when the individual stocks are traded. All the factors combined to increase the tendency of people to invest in mutual funds and this is probably the reason that while it originally started in States, this has been so popularized in India and a growing number of Indians now have their money multiplying in the hands of various fund managers.