Why Should You Invest in Mutual Funds?

Can anyone ever forget what COVID-19 did to the world not too long ago? You can’t even if you want to. No one was prepared to face the wrath of this pandemic that spread like wildfire and affected millions of lives across the globe. The world came to a standstill as countries imposed lockdowns and social distancing measures to curb the spread of the virus. It was a tough time for everyone, especially financially. Despite being a challenging time, it’s amazing how most of us were able to overcome it. But have you ever wondered why some of us were better off than others? Well, you’ll get the answer in due time.

Now, I know what you’re thinking: “Don’t leave me hanging!” Don’t worry, my friend, I won’t keep you waiting for long. I, Ishita Singh, will not only reveal the secret to success during tough times, but through this blog, I will also try to help you prepare for any uncertainties that might come your way in the future. So buckle up and get ready to learn something new. Trust me, it’s going to be worth it!

Let’s Begin by Addressing an Important Question- Why Do You Need to Invest at All?

Investing is an important aspect of personal finance that can help you achieve your financial goals and secure your future. It’s like planting a seed today and watching it grow into a tree tomorrow that provides shade and shelter. Sounds exciting, right?

Now, you might be wondering why investing is necessary. The simple answer is that your savings alone may not be enough to meet your financial goals. Inflation eats into the value of your money over time, reducing your purchasing power. So, if you keep your money in a savings account, earning a low interest rate, you may not be able to keep up with the rising cost of living. On the other hand, investing your money can help you earn a higher rate of return than a savings account. Pretty cool, huh? Who doesn’t love the sound of that? Whether you want to buy a house, retire comfortably, or build a nest egg for your children’s education, investing can help you get there. So why not start now and watch your money grow?

Stop and Ponder: Why Should You NOT Invest in Mutual Funds?

When it comes to investing in mutual funds, it’s a wise decision that can benefit you greatly in the future. However, taking a step back and considering your goals before jumping in is important. We wouldn’t want you to end up regretting your decisions later on.

Consider this example of Mr. John Doe. Yup, he’s back again! So, his monthly salary is Rs. 50,000, and monthly expenses, including rent, utilities, groceries, and transportation, add up to Rs. 40,000. This leaves him with Rs. 10,000 at the end of each month. Well, guess what? He can invest that extra Rs. 10,000 in any way he wants as long as his investment can beat inflation in the long run. But here’s the catch – there are only four asset classes that can beat inflation: real estate, gold, stocks, and mutual funds. Don’t worry if that sounds a bit overwhelming. I’m here to break it down for you and Mr. Doe!

Real Estate: I’m sure John must have considered investing in real estate. Don’t we all do at some point? Anyway, if that is the case, he must also know that it comes with a lot of challenges. From navigating a sea of legalities to coming up with a hefty lumpsum, there’s a lot to consider.

Gold: Gold has always been considered a safe and reliable investment option, but did you know that it has only marginally beaten inflation over the years? Surprising, isn’t it? In fact, most Indians tend to buy gold for consumption rather than investment purposes. Besides, let’s also keep in mind the saying, “Bhagwan woh din na dikhaye ki isko bechna pad jaaye.” And when you hold on to your gold without selling it, it becomes more of a consumption item than an investment.

Stocks: Investing in stocks can be exciting and potentially lucrative, but it’s important to remember that it also comes with a high level of risk. Unless Mr. Doe and you have the academic and professional expertise, as well as the time and interest to closely track the market on a daily basis, it may not be the best option for either of you.

Mutual Funds: Well, well, well, it looks like Mr. Doe has finally come to terms with reality and has decided to opt for mutual funds. After all, what’s not to love about higher returns with less volatility and less risk, right? Unless, of course, you’re not a fan of financial security and prefer to live on the edge. I mean, who needs comfort and the assurance of a financial expert anyway, am I right? And let’s be honest, who wants to bother with discipline when it comes to investments? If you’re not up for all that, then I guess mutual funds are NOT for you.

Risk is the Premium for Getting Higher Returns

Now that you know under what circumstances you should NOT invest in mutual funds, it is imperative to realise a simple fact- there is no reward without risk. If you’re not prepared to take any risks, it is recommended that you stick to placing your money in a Fixed Deposit (FD). But if you are ready to take risks, mutual funds can be your companion and help you build a corpus over time. Remember, risk is the premium for getting higher returns.

Let’s circle back to where we started. Imagine this- a global pandemic hits, and everyone is struggling to make ends meet. But there are some people who seem to be doing better than the rest. How is that possible, you ask? Well, it turns out that people who had invested in mutual funds had a secondary source of income they could rely on during tough times. 

Whether it’s the COVID-19 pandemic or any other emergency, having a financial cushion can make a world of difference. While everyone’s financial resources were getting depleted, those who had invested their money were not solely dependent on their income. They were able to witness their money grow and were in a better position to weather the storm.

Take, for example, the incredible performance of Indian equities. Believe it or not, since the inception of the Sensex in 1986, anyone who has invested in it for 7 years or more has received more than 10% returns with not a single case of negative returns. This means that for the past 38 years, the probability of getting a negative return is zero! It’s truly amazing, isn’t it? This just goes to show the potential of the mutual funds and the Indian stock market and the opportunities that await those who invest wisely.

So, if you haven’t already, it might be worth considering investing in mutual funds or other forms of investment to secure your financial future. After all, you never know what the future might hold!

Mutual Funds are Not DIY

Well, it has already been established that mutual funds can be a great option for beginners, but it’s important to remember that selecting the right funds is not a DIY task. With around 40 Asset Management Companies (AMCs) and approximately 1500 mutual fund schemes to choose from, it can be tough to know where to start. Say, for example, you’ve done some research and have selected 4 schemes for your investment portfolio. But have you thought about why you’re rejecting the remaining 1496 schemes? Do you have the knowledge and experience to make this selection? Or are you basing your decisions solely on the past performance of the funds? 

If that is the case, ask yourself whether the decision to select certain schemes based on their past performance is a calculated decision or just a shot in the dark. In all honesty, this sounds like winning the lottery- it may happen once, but it’s not a guarantee for next time. Investing requires continuous effort and market research to make informed decisions.

That’s why it is crucial to consult a financial expert before making any investment decisions. They can help you understand the intricate world of investing and provide guidance on selecting the appropriate mutual funds that align with your financial objectives. This will ensure that your investment decisions are grounded in facts, not just speculation or hearsay.

On a Parting Note

In a world that’s constantly changing, it’s crucial to be financially prepared for anything that comes your way. And let’s face it, COVID-19 was a wake-up call for all of us. It taught us that being financially secure is not just a luxury, but a necessity. Investing in mutual funds can be a great way to secure your future and achieve your financial goals. But it’s important to remember that investing is not a “get-rich-quick” scheme. It requires patience, discipline, and a long-term outlook. By taking calculated risks and making informed investment decisions, you can build a strong financial foundation that can help you achieve your financial goals and secure your future. So, let’s get started on this exciting journey towards financial freedom together!

Please share your thoughts on this post by leaving a reply in the comments section. Also, check out our recent post on “Retirement Planning- A Complete Guide” 

To learn more about mutual funds, contact us via Phone, WhatsApp, Email, or visit our Website. Alternatively, you can download the Prodigy Pro app to start investing today!

Disclaimer – This article is for educational purposes only and by no means intends to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the offer document carefully before investing.