Why Should Young Professionals Start Investing In Mutual Funds?

Amrina Alshaikh
Apr 06, 2020   •  1 view

Mutual funds are fast gaining popularity as an investment option, and they offer chances of growing wealth and saving taxes alike. They also help save cash and generate income which is very important for youngsters today who are making fortunes by starting their investment journeys early in their careers. Mutual funds are great options for youngsters who can take varied degrees of risks.

Reasons why young professional should invest in mutual funds

Can help reach financial goals: Mutual funds are a good way of reaching specific financial goals for the short and long haul alike. You could be saving for a wedding, for higher education or even retirement. It could also be to pay for the down payment of your new home.

Have a clear understanding of your own expectations: With some risks involved, it is important to have a thorough understanding of the extent of financial losses that you can bear. The investor’s risk profile is very important, and you have to determine whether you are a conservative investor or not. For these scenarios, fixed income or debt mutual funds are the best options.

Long term investments are always better: While mutual funds do offer various tenors for investment, it is best to choose durations of 3-5 years or even more. Equity funds may be initially volatile over shorter periods and should be avoided if you have short term goals to achieve. Long-term goals and investments will turn out more profitable by all means.

Try choosing SIPs: SIPs are great options for salaried millennials these days and you can either invest a lump sum amount or invest at monthly/weekly intervals. This keeps you disciplined as an investor while keeping you invested throughout all market fluctuations. If a youngster starts early, he/she builds wealth more strategically while fulfilling all financial targets earlier than expected. SIPs today yield approximately 8,000 crore in investments across the country and there are more than 2.5 crore SIP accounts as well.

Enjoy greater tax savings: Be it any kind of return like bank fixed deposits, mutual funds, gold, stocks or anything else, you will have to pay taxes on the returns. Mutual funds have varied tax rules and hence taxation rules are different for stocks or funds that are invested in fixed income securities. For equity funds, gains on investments that are held over a year, will be taxed at 10%. There are additional surcharges as well, if they are applicable. In case of debt funds, gains on investments held for more than three years will be taxed at 20%. Of course, surcharge and cess may be applicable too. For lower periods, returns will be taxed on the basis of your income tax slab and will be added to your overall income.

As can be seen, investing in mutual funds is a great way for youngsters to start building wealth and financial security for their futures along with accomplishing vital life goals along the way.