Why Mutual Fund Investment is the Best Choice for Financial Planning?

Last Updated on 21/02/2019 by Deepak Singla

Financial planning is an important aspect of an individual life. It is an ongoing process which helps a person to take a sensible decision about investing his saving in order to avoid panic and pain of a life-stage crisis in future. By adopting a decent financial plan, as an investor, you’ll be able to deploy your money in right avenues. Investment in mutual funds is a good option to build strong financial wealth. It is not just a simple investment on any particular financial instrument but it is a path that will help you to achieve your financial goal. As an investor, you just need to follow the plan precisely and it will reach your financial goals according to your personalized asset allocation plan.

Benefits of Investing in Mutual Funds for Financial Planning

Mutual Fund is the best investment option for an investor no matter about the asset class where you want to invest in. All assets like equity, debt funds, systematic investment plan, and gold are good options for financial planning and they’ll be in control of your finances if they’re organized properly by you. Here are some major reasons that clarify why investment in mutual funds is considered as a remarkable investment option:

Manage Professionally

Mutual funds are easy to manage professionally. As an investor, you can hire a professional financial advisor for your proper wealth management. When you invest in equity oriented funds, your fund manager actually takes care of portfolio and makes you free from the hectic duty of taking portfolio decisions. A professional financial planner is also capable of managing debt instruments issued by various entities with his ideas and experiences in evaluating the available credit opportunities.

Investments costs are low

Mutual funds are significantly less expensive as investors are never charged high commissions for each purchase or sale of a respective financial instrument.  When you hire a certified financial advisor, he takes responsibility for maintaining your mutual fund portfolio by placing all the necessary trades. In such investment process, the investor is only charged for one low expense.  However, as a mutual fund investor, you should ensure that your money is invested in no-load mutual funds with low expense ratios to build a strong portfolio for your future.

Versatile for all investors

Mutual funds are highly flexible and versatile in nature.  They’re easy to manage by beginners as well as professional money managers. As a working professional, you must start saving for retirement by purchasing a decent mutual fund and your planner with his experiences will utilize the same mutual funds in a portfolio of funds to ensure your financial comfort after your retirement.

Starts with a Minimal Amount

Mutual funds are flexible and one can start investing with as low as Rs 5,000 or even with Rs 1,000 in some mutual fund schemes. Investors here get the flexibility to invest in a lump-sum investment plan or any Systematic Investment Plan (SIP) and can freely choose options like dividend, dividend reinvestment, and growth depending on their cash flow requirements.  There is also a provision for investors in such mutual fund investment schemes to withdraw any sum from their saving but only after the successful completion of minimal lock-in period (usually of 3 years).

Comparison between Mutual Funds and Other Investment Options

Mutual Fund Vs Bank Deposits:-

The liquidity provided to an investor after investing in mutual fund scheme is relatively higher than that of bank deposits. Also, the dividends received by an investor in mutual fund schemes are free from taxes whereas the yield on bank deposits usually becomes negligible when if accounts for tax and inflation.

Mutual Funds Vs Financial Institution Bonds

Financial Institution bonds are known for offering high compounded returns to an individual but such bonds are more prone to interest rate risks than mutual funds. Therefore it may be considered as an insecure investment option. However, mutual funds investments are more secure and diversified because your amount is invested in different financial instruments such as debt and money market. Investors here can easily liquidate his holdings whereas, in financial instrument bonds and other direct securities, liquidation of holdings undergoes complex procedures.

Mutual Fund Vs Corporate Bonds:-

Investment in corporate bonds is less attractive than mutual funds investment for investors because they receive low net returns after the maturity of a policy due to excessive tax effect. On the other hand, in mutual fund schemes, investors enjoy tax exemptions on dividend received. Investors also need to ascertain that the issuing company is credit rated or not while investing in corporate bonds as sometimes investment in fake agencies ruins the invested amount completely.

Mutual Fund Vs PPF:-

PPF or Public Provident Fund is also a good option to attain high yielding return but such yield usually comes at the expense of growth and liquidity.  They have a minimum lock-in period of 15 years which is somehow a lengthy period for an investor. Mutual Fund schemes have a minimum lock-in period of 3- 5 years and investor has an option to continue with the policy or to withdraw his saving after the completion of minimal lock-in tenure.

Conclusion

Mutual funds plans like SIPs are benefited from the power of compounding and therefore they’re considered as the most efficient method of financial goal planning. So, consult a financial advisor right now and start planning for your future by opting a worthy mutual fund scheme.