Mutual funds have become one of the most popular investment avenues for Indian investors looking to create wealth over the long term. As per data, assets under management (AUM) of the Indian mutual fund industry reached an all-time high of ₹52.89 trillion in January 2024, growing from ₹23.37 trillion as of January 31, 2019.
This growth can be attributed to several factors that make mutual funds an attractive investment option:
Diversification With Low Investment Amounts
Mutual funds allow investors to build a diversified portfolio with relatively little money. Through a mutual fund, you can invest in a variety of asset classes like equities, bonds, money market instruments, etc. This reduces risk by ensuring that you don’t have all your eggs in one basket.
Further, the minimum investment required to invest in mutual funds can be as low as ₹500 through systematic investment plans (SIPs). This allows small investors to take the first step towards creating wealth.
Professional Management
Mutual funds are professionally managed by experienced fund managers and their research teams. They have the skills, expertise and resources to analyse markets and make sound investment decisions.
As an individual investor, it can be difficult to track so many stocks and asset classes actively. Fund managers regularly track markets, company financials, and economic trends to construct portfolios aligned with specified schemes and investor risk profiles.
Flexibility & Liquidity
Mutual funds offer investors multiple options to invest and withdraw funds based on their goals and liquidity needs. Most funds allow daily investments and withdrawals at the day’s net asset value (NAV) prices. There are also Systematic Investment Plans (SIPs) and Systematic Withdrawal Plans (SWPs) to provide disciplined investing flexibility.
Unlike traditional instruments like fixed deposits, mutual funds allow easy liquidity without significant penalties.
Tax Benefits
ELSS or Equity Linked Savings Schemes, popularly known as tax-saving mutual funds, offer income tax deductions up to ₹1.5 lakh per year under Section 80C of Income Tax Act, 1961.
ELSS funds have the shortest lock-in of 3 years compared to other 80C options like NPS, PPF, FD, etc. Many investors consider ELSS funds to save taxes and as an attractive avenue for long-term equity exposure and wealth creation.
For example, Bandhan ELSS Tax Saver Fund is an ELSS fund with a diversified equity portfolio of around 50 stocks. With assets under management (AUM) of ₹5,976 crores as on 31st January 2024, it has delivered healthy long-term returns while helping investors claim tax deductions.
Long-Term Wealth Creation Potential
While past performance does not guarantee future returns, equity-oriented mutual funds have demonstrated impressive long-term wealth-creation potential. As per a CRISIL study, ₹10,000 invested in equity mutual funds in 1990 would have grown to around ₹2.51 crore in 2020, delivering a compounded annual growth rate (CAGR) return of roughly 15.8%.
Conclusion
For retail investors looking to achieve financial goals and create wealth, mutual funds offer solutions for every need. Their core features of diversification, active management, flexibility and tax efficiency make mutual funds the easiest route for wealth creation over the long run.
With a systematic investment approach, sound advice and long investment horizons, mutual funds can create an enormous coprus to secure your financial future. So, discover the funds suitable for you, and embark on your wealth creation journey today!
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