Why are mutual funds attractive for small investors?

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Why small investors should invest in mutual funds

The safety of your investment is a key consideration when investing your hard-earned money. This holds true particularly for small investors, many of whom are increasingly turning to mutual funds. Mutual fund investments are convenient and bring high returns. And you don’t have to invest large sums either.

What are mutual funds?

Mutual funds represent a pool of money that is accumulated when many investors come together. This money is then invested in the market by a dedicated fund manager who ensures optimal returns for all investors. A mutual fund generally operates as a trust that invests in many financial securities. These include shares, debt, and money market instruments, among others. 

You will find mutual fund schemes of all kinds. They differ based on different factors such as the investor’s risk profile, investment duration, and return expectations. For instance, if you can afford to take a higher risk in the market to gain maximum returns, equity funds may be suitable for you. But what if you are a conservative investor who wants to play it safe? Then debt funds are the way to go. 

Why mutual funds investment suits small investors

Here are some of the reasons why mutual funds are attractive investment avenues for small investors.

1. Expertise: Mutual funds are managed by dedicated fund managers who understand and keep track of market trends. This is beneficial for small investors who do not have enough market knowledge or exposure. The fund manager helps to leverage the market and gain maximum returns.

2. Systematic investment: Systematic and disciplined investing is the key to a sound financial future. With mutual funds, you can achieve this with ease. For instance, you could opt for a systematic investment plan (SIP). This would allow you to invest a pre-determined amount in the fund at regular intervals. If you wish, you could also arrange for auto-debit from your account.

3. Timing: Mutual fund investors do not have to worry about timing the markets (i.e. thinking about when to enter or exit the market). Any short-term market volatility and inflationary impacts should be overcome in the long run. Besides, the fund manager has the expertise to ensure positive returns on your investment.

4. Start small: What makes mutual funds so convenient is that you need not invest large sums. You could start with an SIP and invest just Rs 500 each month. That works out to the cost of just two pizzas! Later, you can increase or decrease your SIP amount based on your financial condition.

5. Risk diversification: Mutual funds can be of various types depending on investment duration, risk profile, sectors, and more. By investing in a variety of mutual funds across different categories, you can diversify your portfolio. This will protect your investments from market volatility. Even if one sector is not performing well, you can always rely on the returns from funds with exposure to other sectors. 

Summing up

There are many reasons why mutual funds are the vehicle of choice for small investors. Right from the minimum investment requirement to investment diversification, mutual funds offer many benefits. Just open a trading account with a financial company like Kotak Securities and start investing today.

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