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Is It Wise To Continue Investing In Mutual Funds For A Long Term?

13 May 2022

Mutual funds are pooled funds of money contributed by many investors. The fund manager invests the pooled money into stocks, bonds, or other assets that earn a return on investment (ROI) over time.

The returns earned by the fund are shared among all its investors. Investors can invest their money for short, medium, or long-term goals by choosing the appropriate fund. Mutual funds provide investors with low-cost access to a wide range of securities such as equity, debt securities, derivatives, and commodity futures contracts.

In addition to providing diversification benefits and liquidity, mutual fund investments offer tax benefits under Section 80C of the Income Tax Act 1961. These benefits include deduction from taxable income up to Rs 1 lakh per financial year and exemption from capital gains tax on the sale of units before maturity date except for redemptions within 3 years from inception date or if redeemed before 5 years from inception date but not more than once every three years after initial investment made into fixed maturity plans (FMPs). 

What Is A Long-Term Investment Goal?

A long-term investment goal is any goal that falls outside of the next five years. If your goal is to save up for retirement or pay off your student loans within five years, then it would be considered short-term because it doesn’t take more than 5 years for you to achieve it. A long-term goal would be saving up for retirement in 25 years or sending your children to college 35 years from now when they are ready to go off on their own. 

Should You Make Long term investment in Mutual Funds?

Mutual funds are ideal for long-term investing for several reasons. They allow you to diversify your portfolio, which reduces risk and helps you get better returns. They also provide regular cash flows to meet your goals and help you save money on taxes by reducing the amount of capital gains tax payable on your investments.

The following are some of the key reasons why mutual funds are a great option for investors who have the goal of saving up for a long time:

  • Mutual funds offer diversification by investing in different asset classes and securities within those classes. This reduces the risk that anyone’s security will significantly affect the value of your portfolio. Mutual funds allow you to invest in a wide range of securities, including stocks, bonds, and other debt instruments. With a single transaction, you can gain exposure to an entire sector or asset class.
  • Mutual funds provide liquidity by allowing investors to sell their holdings at any time without incurring large transaction fees or penalties. This means investors can withdraw some or all of their investments at any time without facing high costs for doing so.
  • There are no sales charges. You pay only the fund expense ratio, which is usually small compared to other types of investments.
  • You can choose from different types of mutual funds based on your risk tolerance and goals. For example, if you’re saving for retirement, you may want to invest in a conservative fund that has low volatility so that your money will grow steadily over time with less chance of losing value. You can also invest in an aggressive growth fund that invests in stocks or other securities with higher risk but also higher potential returns if those investments do well.
  • Mutual funds don’t require any minimum initial investment amount (like stocks do). So even if you don’t have much money right now but want to start investing, there’s no reason why you shouldn’t be able to do so.

Mutual funds are a good option for investors who want to grow their money over time. They offer the potential for higher returns than other types of investments, such as stocks and bonds. However, they also carry risks that may not be suitable for all investors. These risks include market fluctuations, which can cause fund values to fall or rise dramatically; and fund fees, which reduce your returns over time.

Things to Consider Before Making an Investment

Long term investments in Mutual Funds are a great way to save for your future. But before you make one, make sure you understand what it is, how much it costs and how much risk it involves. Several factors determine whether investing in mutual funds is right for your goals:

1) Risk appetite

If you are looking at short-term gains, then mutual funds may not be suitable as they tend to fluctuate more than other asset classes like stocks and bonds. However, if you are looking at long-term gains with low volatility, then investing in mutual funds could be an option worth considering.

2) Time horizon

The time horizon is the amount of time for which you are planning to invest in mutual funds. For example, if you want to invest for 10 years then the time horizon is 10 years. Consider how long you plan to invest for. If you want to make a long-term investment in mutual funds, it’s best to choose one that has been around for many years and has a proven track record of success.

3) Your Financial goals

Think about what your goals are with this particular investment. Are you looking for growth over time or income right now? Do you just want something safe and steady while also leaving room for growth? There are different types of mutual funds that cater to these different goals; it’s important to understand which type will suit your needs best before deciding where and how much money should go into each fund. Check out the best performing mutual funds in long term to make a better choice.

4) Market Situation

The market can be volatile at times, which means that investing in mutual funds can be risky if you don’t know what you’re doing. If you’re new to investing or don’t have much experience with this kind of thing, it may be better for you to start small until you get comfortable with how things work.

Conclusion

Mutual funds for long term are a wise choice: from 5-15 years and beyond. Thus, the money you invest should be for the long haul too. The point is that, when it comes to long-term investments, you must bite the bullet and stay invested in mutual funds and forget about your equity portfolio for at least a decade. If you are not yet ready to do so and have short-term goals, then you must have a good reason to invest in equity-oriented mutual funds. It might be best to invest in debt mutual funds because these will yield better returns within a year or two if held for 5 years.

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