What are Mutual Funds? How You Can Make The Most Out Of It In Your 20s?

In layman’s terms, it is an investment vehicle. A mutual fund is an investment vehicle where investors from various verticals pool their money to gain returns on their investment. The accumulated corpus is then invested in different securities like Stocks, Bonds, Gold, and other money-yielding assets to generate profit over a period of time. But then arises an obvious question, who manages all the work that goes around pooling, investing, and yielding profit?

An investment professional a.k.a Fund Manager or Portfolio Manager. It’s his/her prime responsibility to invest your capital into different securities and serve potential returns on your capital. Returns are based on your capital contribution to the fund.

Now, in order to game up your personal finance journey, let’s explore why you should invest in Mutual Funds and what are the different benefits you can relish by investing in Mutual Funds.

Why Mutual Funds? What are its benefits?

Well, while there are countless benefits of managing your personal finance, investing in Mutual Funds is one of them. Let’s see why you should invest in Mutual Funds and how you can make the most out of it in your 20s -

Earn Money From Your Own Money

By investing in Mutual Funds, you can earn potential returns over a period of time. As returns are purely based on the market performance, you will relatively have higher chances of earning when the market is doing exceptionally well. On the contrary, with the market’s poor performance the value of your fund might have a negative impact on your share. Looking at the brighter side, Mutual Funds unlike any traditional investment option provide relatively higher returns on your investments.

Hire Your Money Driver!

When you do not have enough time to research and analyze the market trends to stay on top of your investment game, you ideally seek professional help! Like you hire a driver when you do not have time to learn to drive yourself!

Similarly, while being busy creating a work-life balance, we are likely to have less to no time to invest ourselves in performing research about the company’s financials, behavioral trends and analyzing its capability to yield money in the market. To simplify our journey, we can hire a permanent driver that can take up the responsibility of doing the aforementioned job for us! Finance driver a.k.a Fund Manager is an expert at studying the market and company from an asset class perspective. They can solve the puzzle for you so you can have higher returns over your invested capital.

What Is Diversification Anyway?

Have you heard the famous saying, “Don’t pull all your eggs in one basket”? While investing, when you push all your capital into a single asset, the chances of you bearing a risk get higher. While it’s ideal that you should invest in different asset classes, diversification helps in toning down your chances of bearing all the risk at once.

What is diversification anyway? Diversification is an ideal way of allocating your capital to different asset classes in order to avoid/reduce your chances of getting exposed to risks that are associated with the market.

For instance, by investing in Mutual Funds that track the BSE Sensex, you can get access to a good number of stocks across different sectors under a single fund rather than consciously choosing 15 individual stocks in different sectors which might turn risky at any point without your skillful analysis.

Wouldn’t You Love To Save Some Tax Legally?

By investing in ELSS (Equity Linked Savings Scheme) funds you can save up to 1.5 Lakh under Section 80C of the Income Tax Act. Did you know this? Leave your answer under this blog.

ELSS funds are restricted to a lock-in period of 3 years, i.e., when you invest in ELSS funds, you can withdraw your capital only after the lock-in period ends.

Wait a minute! There is one more benefit called Indexation. It’s a win-win affair.

By investing only in Debt Mutual Funds, you can adjust the purchasing price of your investments by reflecting the effect of inflation on them. With Indexation, you can tone down your tax liabilities.

Higher Purchase Price = Lesser Profits = Lower Tax

Flexibility

Mutual Funds have a tendency of allowing flexibility to your pattern of investing. With Systematic Investment Plan (SIP) you can invest smaller amounts periodically which extends your flexibility and ease towards investing in Mutual Funds. Earn potential returns and reap long-term benefits by the effect of compounding on your invested amount while every time the returns get added to your principal amount. Make friends with “Compounding” in your 20s and earn great interest returns as it favors time!

Time being the real game player in the case of investments, if you have time, mindfully use it by starting your investment journey in your 20s. When you are in your 20s, the biggest money-making wand you have is Time and your capability to tolerate Risks (if any).

Are you still confused? We can help you!

Are there other aspects to analyze on Mutual Funds? Come to us with your questions, we will help you!

We, at www.getoapp.com, are associated with top-notch finance experts who have been in the finance industry for more than 15 years. We are a vernacular-based personal finance education platform for first-time investors.

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