Mutual funds are one of the popular investment instruments, giving investors the choice to select a fund that is in line with their goals and appetite for risk. As per the Association of Mutual Funds in India, mutual fund contribution via SIPs has increased over the years.
The fiscal year of 2020-21 saw a 4% drop in mutual fund collections through SIP when compared to FY 2019-20, due to COVID-induced uncertainties.
However, despite the COVID challenges, FY 2020-21 SIP contribution was Rs. 9,182 crores, proving that SIPs have been the preferred route for many investors to invest in mutual fund schemes.
The following benefits would compel you to invest in mutual funds –
Risk management through diversification:
The money pooled through mutual funds is often invested in diverse assets, thereby balancing risks and increasing potential returns of the fund. Also, mutual funds are managed by professional fund managers who have extensive expertise and ample experience in maximizing gains on your investment.
Flexibility in investment:
Mutual funds offer a variety of investment options within themselves. You can opt for the ones based on your risk appetite (low risk, medium risk and high risk) or based on your investment growth strategy (sector funds, growth funds, value funds, index funds and debt funds).
Absolute transparency:
Mutual funds fall under the strict supervision of the Securities and Exchange Board of India (SEBI). Crucial details like the credentials, the qualifications, the track record, the years of experience, etc., of the fund manager, the Assets Under Management (AUM), and the solvency details of the AMCs are freely accessible to the investors.
Why should you invest in mutual funds through SIP for a longer period?
An attractive advantage of investing in mutual funds through SIP is getting the benefit of the power of compounding. A SIP that has a longer time horizon is generally more rewarding in terms of returns.
As per various studies and research papers, SIPs that are continued over a longer period have a reduced probability of negative returns or risks associated with volatile market conditions.
Before opting for a SIP, it is essential to understand that SIPs, long-term or short-term, do not completely eliminate the risks associated with market investments. They help in reducing such risks. If you are looking to invest in SIPs for a longer period, it is essential to set a tenure that is long enough to cover uptrends and downtrends in the market.
If deciding on the type of mutual fund or the horizon of your SIPs seems difficult, it is always better to take expert advice to reach your financial goals.
