If you are wondering what to do with your Diwali bonus this year, then getting started in the investment scene with mutual funds might be the perfect step for you to take. If you have been interested in mutual funds and the whole investment scheme for a while now, then let this festive season offer you the right starting opportunity. During this festival of light, take the correct financial steps to make your bank account glow. In this article, we will take a look at the top 4 reasons why you should be investing in mutual funds this Diwali:
- Small Investments:
You don’t have to break your bank to get started with mutual funds. You have the choice of starting with relatively small amounts in case you want to test out the waters first. Mutual funds are based on the pooling of money, and with a fraction of capital outlay, its investors can have beneficial ownership of a varied portfolio of stocks. This means you can buy units of a diversified equity mutual fund by making small investments that go as low as INR 500 if you go with ELSS schemes.
- Diversification of Risk:
The whole investment sector is full of risks, and there’s no guarantee that you will be pulling in profits all the time. However, in the case of mutual funds, the risk factor is minimised to certain extents, making it an ideal form of investment for newcomers this Diwali. Each stock generally comes with 3 types of risks, called market risk, company risk and sector risk. Market risk is classified as systematic risk, whereas both company and sector risks are grouped as unsystematic risk. So, as an investor in mutual funds, you will be able to diversify the unsystematic risks by putting your money in a diversified portfolio of stocks from various sectors. Hence, instead of facing systematic and unsystematic risk via individual stocks, you will only be subjected to market risk with mutual funds.
- Availability of Investment Mode Variety:
Another reason to start investing in mutual funds this Diwali is the availability of variety in both investment and withdrawal. You can go on with the investment mode that you are comfortable with, including One Time (Lump Sum), Systematic Transfer Plans (STP), Systematic Investment Plans (SIP) and Systematic Withdrawal Plans (SWP).
- Tax Benefits:
Investing in mutual funds can help you enjoy some tax benefits, which you can get via Equity Linked Saving Schemes (ELSS). You can avail of annual tax benefits for investments, ranging up to INR 1.5 lacs as per Section 80C of the Income Tax Act, along with tax free-dividends (no upper limit). ELSS funds have a lower lock-in period of 3 years, which will be ideal in case you have a similar investment horizon.
Conclusion:
Mutual funds are indeed a great way to advance your investment journey. Even though you can start investing in them anytime you want, let the bright lights of this Diwali festival guide you along your journey and help you make correct financial decisions.
