Why Should You Invest in Mutual Funds

Investing in mutual funds offers numerous advantages over managing a portfolio independently. They provide diversification, spreading risk across various assets. Additionally, mutual funds offer convenience with professional management and lower costs, making them an accessible and efficient choice for both novice and experienced investors.
EXPLORE FUNDS
Why Invest in Mutual Funds
EXPLORE FUNDS
4 mins
9-April-2025

Mutual funds are a smart and accessible way to participate in the financial markets, especially for investors who may lack the time or expertise to manage their own portfolios. By pooling money from various investors, mutual funds allow individuals to invest in a diversified basket of stocks, bonds, or other securities, reducing overall risk. These funds are professionally managed by experts who track the market and make investment decisions on your behalf. Whether you aim for long-term wealth creation, tax-saving benefits, or regular income, mutual funds offer flexibility to match your financial goals, investment horizon, and risk tolerance effectively.

What is Mutual Fund?

Mutual funds are investment vehicles that pool money from numerous investors to create a diversified portfolio of stocks, bonds, or other securities, managed by professional fund managers. Investors buy units or shares, representing their proportional ownership in the fund. The primary aim is to achieve collective investment goals, such as capital appreciation, income generation, or a combination of both. Mutual funds offer a practical and accessible way for individuals to invest in a diversified portfolio without directly managing securities. They cater to investors with varying risk appetites, providing options ranging from low-risk debt funds to higher-risk equity funds. With professional management, liquidity, and regulatory oversight, mutual funds serve as a popular and effective tool for wealth creation and financial planning.

Why should you invest in mutual funds - Tops reasons

Stated below are few reasons for why you should invest in mutual funds:

  • Diversification of portfolio: Mutual funds allow you to invest in a diverse set of securities that are selected and managed by professional fund managers. This reduces the risk of investing in a single stock or sector and helps you achieve a balanced portfolio that can withstand market fluctuations.
  • A fund for every type of investor: Mutual funds offer a variety of schemes that cater to different risk appetites, investment horizons, and financial goals. Whether you are a conservative, moderate, or aggressive investor, you can find a fund that matches your profile and preferences.
  • Advantages of high liquidity: Mutual funds are easy to buy and sell. You can redeem your units of an open-ended mutual fund schemes at any time and get your money back within a few days. This gives you the flexibility to access your money when you need it and also take advantage of market opportunities.
  • Options for lumpsum and SIP investments: Mutual funds allow you to invest either in a lumpsum or in a systematic investment plan (SIP). A lumpsum investment is a one-time investment that can help you benefit from the power of compounding over a long period. A SIP is a regular investment that can help you average out the cost of purchase and reduce the impact of market volatility.
  • The benefit of transparency: Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), which ensures that they follow strict guidelines and disclose all the relevant information to the investors. You can easily track the performance, portfolio, expenses, and risks of your mutual fund schemes through their factsheets, annual reports, and websites.
  • Tax benefit: Mutual funds also offer tax benefits to the investors. Some mutual fund schemes, such as equity-linked savings schemes (ELSS), are eligible for tax deduction under Section 80C of the Income Tax Act. The returns from mutual funds are also taxed at a lower rate than other forms of income, since the lock-in period of these funds is 3 years.
  • Competency of cost: Mutual funds are cost-effective as they allow you to invest in a diversified portfolio of securities with a low amount of money. You also save on the brokerage, commission, and transaction costs that you would incur if you invest directly in the stock market. The only cost that you pay for mutual funds is the expense ratio, which is a percentage of the fund’s assets that is charged for managing the fund.
  • Lower transaction cost: Mutual funds also reduce the transaction cost for the investors as they buy and sell securities in bulk. This enables them to get better prices and lower the impact cost, which is the difference between the actual price and the desired price of a trade. The lower the impact cost, the higher the returns for the investors.
  • Smaller upfront investment: Mutual funds allow you to start investing with a small amount of money. You can invest as low as Rs. 100 in a mutual fund scheme through a SIP. This makes mutual funds accessible and affordable for everyone, especially for beginners and small investors.
  • Professional management and expertise: Mutual funds are managed by qualified and experienced fund managers who have the knowledge and skills to analyse the market trends, select the best securities, and optimise the portfolio performance. They also have access to advanced tools and research that help them make informed and timely decisions. By investing in mutual funds, you can benefit from the expertise and guidance of the fund managers.
  • Long-term returns: Mutual funds have the potential to generate higher returns than other forms of investments in the long run. This is because mutual funds invest in the growth and development of various sectors and industries that contribute to the economy. They also benefit from the power of compounding, which means that the returns are reinvested to generate more returns over time.
  • Easy access: Mutual funds are easy to access and invest in. You can buy and sell mutual fund units through online platforms, mobile apps, or offline channels. You can also monitor and manage your mutual fund portfolio through these platforms. You can also get regular updates and reports on your mutual fund schemes through email, SMS, or online statements.

Pros of investing in mutual funds

If you are wondering why investing in mutual funds is good or why invest in mutual funds, here are the main advantages:

  • Diversification: Your money is spread across various assets, reducing overall risk.
  • Professional management: Fund managers handle the investment, saving you time and effort.
  • Accessibility: Start investing with as little as Rs. 100 via SIPs.
  • Liquidity: Open-ended funds allow you to redeem investments anytime.
  • Flexibility: Choose from equity, debt, hybrid, or index funds based on your goals.
  • Transparency: Regular updates on NAV and performance are provided.
  • Tax benefits: Some funds, like ELSS, offer deductions under Section 80C.

Cons of investing in mutual funds

While mutual funds are a great tool for wealth creation, they also have a few drawbacks:

  • Expense ratio: Fund management fees can reduce overall returns.
  • No guaranteed returns: Being market-linked, returns fluctuate with market performance.
  • Exit load: Some funds charge a penalty for early withdrawal.
  • Limited control: Investors don’t have a say in specific stock selections.
  • Short-term volatility: Equity mutual funds can be affected by market ups and downs.
  • Tax implications: Gains are taxable based on holding period and fund type.

Things to consider as a first time investor

Here are a few things to consider as a first time investor in mutual funds:

  • Establish clear investment objectives: Clarify your financial goals, budget, and time horizon to determine the amount you can allocate for investing. Align investments with your risk profile, recognising that purpose-driven investments are more effective.
  • Select an appropriate fund type: Beyond merely understanding mutual fund categories, opt for a balanced or debt fund, recommended for first-time investors due to their lower risks and consistent returns.
  • Analyze and choose a mutual fund: Evaluate factors such as the fund manager’s credentials, expense ratio, portfolio components, and assets under management when selecting a mutual fund from the multitude available in each category.
  • Diversify your portfolio: Mitigate risks and enhance returns by investing in multiple mutual funds across different asset classes and investment styles. A diversified portfolio ensures stability, with underperforming funds offset by the others.
  • Opt for SIPs over lump sum investments: For equity investments, especially for newcomers, prefer Systematic Investment Plans (SIPs) to spread investments over time and navigate market fluctuations. SIPs offer the advantage of rupee cost averaging for long-term returns.
  • Maintain updated KYC documents: Complete the Know Your Customer (KYC) process with a PAN card and valid address proof, a mandatory requirement for mutual fund investments to comply with government regulations.
  • Activate net banking for convenience: Activate internet banking on your account to facilitate straightforward, secure, and rapid mutual fund investments. While other methods like debit cards and cheques are available, net banking provides a more streamlined process.
  • Consult a financial advisor: Given the intricacies of mutual fund investing, enlist the services of a financial advisor or expert to navigate the vast array of funds, monitor performance, and ensure sound investment decisions aligned with your financial goals.

How to invest in Mutual Funds with Bajaj Finserv?

Step 1: Visit the Bajaj Finserv website or download the app from Google Play Store or App Store
Step 2: Navigate to 'Investments' and click on 'All Investments' on the home page
Step 3: Click on 'Mutual Funds' icon
Step 4: Click on 'Explore Funds'. You will be redirected to the mutual funds listing page
Step 5: Filter by scheme type, risk appetite, returns, etc. or choose from the top performing funds list
Step 6: All the mutual funds of the particular category will be listed, along with the minimum investment amount, annualised return, and rating
Step 7: Click on 'Invest Now'
Step 8: Enter your mobile number and sign in using the OTP
Step 9: Verify your details using your PAN, date of birth. If your KYC is not complete, then you will have to upload your address proof and record a video
Step 10: Enter your bank account details
Step 11: Upload your signature and provide some additional details to continue
Step 12: Choose and select the mutual fund that you want to invest in
Step 13: Choose whether you want to invest as SIP or lumpsum and enter the investment amount. Click on ‘Invest Now’
Step 14: Select your payment mode i.e., net banking, UPI, NEFT/ RTGS
Step 15: Once your payment is done, the investment will be complete

Your investment will start reflecting in your portfolio within 2-3 working days.

Conclusion

In conclusion, mutual funds offer a compelling gateway to the world of investing. They provide diversification, professional management, and accessibility, making them suitable for a wide range of investors. Whether you are a seasoned investor seeking growth or a beginner building your nest egg, mutual funds offer a powerful tool to achieve your financial goals. Start small, choose funds aligned with your risk tolerance, and enjoy the benefits of compounding returns over the long term. Remember, mutual funds aren't a get-rich-quick scheme, but a strategic approach to growing your wealth and securing your financial future.

Essential tools for mutual fund investors

Mutual Fund Calculator

Lumpsum Calculator

SIP Investment calculator

Step Up SIP Calculator

SBI SIP Calculator

HDFC SIP Calculator

Axis Bank SIP Calculator

ICICI SIP Calculator

Nippon India SIP Calculator

ABSL SIP Calculator

Groww SIP Calculator

LIC SIP Calculator

Tata SIP Calculator

BOI SIP Calculator

Motilal Oswal Mutual Fund SIP Calculator

Kotak Bank SIP Calculator

Top performing funds

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Debt

Hybrid

Tax saver

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Frequently asked questions

Are mutual funds a good investment?

Mutual have a potential to be a good investment option since they offer diversification, professional management, and liquidity. They also have tax benefits and higher returns.

What are some disadvantages of mutual funds?

Common risks associated with mutual funds are: high fees, lack of control, and market risk. They also have exit loads, lock-in periods, and fund manager dependency.

Are mutual funds safe?

Mutual funds are subject to market risk. They also have credit risk, interest rate risk, and liquidity risk.

How to know which mutual funds are good?

In order to pick the best mutual funds for your portfolio, you should evaluate their performance, risk, ratings, and portfolio. You can also compare them with benchmark funds and peer funds.

Are mutual funds good for short-term investment?

Some funds are suitable for short-term goals, such as liquid funds and ultra-short-term funds.

Why mutual funds are best for beginners?
  • Diversification: Mutual funds spread your investment across multiple companies/assets, reducing risk compared to picking individual stocks.
  • Professional Management: Experienced fund managers handle investment decisions, saving you time and research.
  • Low Investment Thresholds: You can start small with most mutual funds, making them accessible for beginners.
Who benefits from mutual funds?

Almost any investor can benefit from investing in mutual funds!

  • Beginners: As mentioned above.
  • Growth Seekers: Equity funds offer potential for capital appreciation.
  • Income Seekers: Debt funds provide regular income streams.
  • Long-Term Investors: Mutual funds are well-suited for long-term wealth building through compounding.
How to pick a mutual fund?
  • Assess Risk Tolerance: Choose funds that align with your comfort level for risk (growth vs. stability).
  • Investment Goals: Consider your financial goals (retirement, major purchase) and choose funds with a suitable time horizon.
  • Research & Compare: Compare fees, performance history, and investment style before choosing a fund.

 

When to buy mutual funds?
  • Long-Term Focus: Mutual funds are for long-term investing (5+ years) to ride out market fluctuations.
  • Systematic Investment Plan (SIP): Consider rupee-cost averaging through SIPs to invest regularly regardless of market timing.
  • Don't Time the Market: Trying to time the market entry point is difficult. Invest consistently for long-term growth.
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Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.


Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.