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Among the various investment options available in the market today, isn’t mutual funds one of the fastest-growing and most significant?
In fact, did you know that the total investment through Systematic Investment Plans (SIPs) in mutual funds crossed ₹25,000 crore for the first time in October 2024?
Isn’t this a clear indication of how popular and trusted mutual funds have become among investors? Furthermore, the total assets managed by India’s mutual fund industry are nearing an impressive ₹70 lakh crore.
Isn’t this a testament to the growing confidence in mutual funds as a viable investment option?
Table Of Contents:
- Company Stocks vs Equity Mutual Funds
- Fixed Deposit vs Debt Mutual Fund
- Property vs Real Estate Fund
- Gold Jewelry vs Gold Savings Fund
- Bank Savings Account vs Liquid Fund
- Mutual Fund Portfolio
- Final Takeaway
Company Stocks vs Equity Mutual Funds
When it comes to investments offering returns that outpace inflation, the stock market and real estate are often at the forefront.
Among stock market investments, company stocks and equity mutual funds play a crucial role.
While direct stock investments hold the potential for higher returns, they also come with substantial risks.Is the risk worth it? Wouldn’t it be better to consider equity mutual funds instead?
These funds diversify investments across 30 to 80 company stocks, drastically reducing risk. Additionally, with a skilled fund manager in charge, the risk is further minimized.
So, how can you achieve strong returns while keeping risk at bay? In many cases, equity mutual funds offer the ideal balance.
Fixed Deposit vs Debt Mutual Fund
In the realm of debt market investments, Fixed Deposits and Debt Mutual Funds are two significant options.
When comparing post-tax returns, debt mutual funds tend to outperform fixed deposits. But what makes debt mutual funds stand out? With fixed deposits, the interest income is taxed based on the investor’s income tax slab. In contrast, with mutual funds, you only pay tax on capital gains, and that too according to your tax bracket. Let’s look at an example for better clarity.
Suppose an investor has invested ₹1 lakh in a fixed deposit offering 7% annual interest. This would generate ₹7,000 in interest over the year. If the investor falls under the 30% tax bracket, they will have to pay ₹2,100 as tax.
Now, if the same ₹1 lakh is invested in a debt mutual fund, where each unit is worth ₹10, the investor will receive 10,000 units.
With a 7% return, the unit price increases to ₹10.7, making the total value ₹1,07,000 after one year. If the investor sells 654.2 units, they will realize a capital gain of ₹458. For this, the tax payable at the 30% rate is only around ₹135.
So, in comparison, an investor in a fixed deposit pays ₹2,100 in taxes, while an investor in a debt mutual fund pays only ₹135. The key difference?
With a fixed deposit, you pay tax on the interest income immediately, but with a debt mutual fund, tax is only due when you sell the units and realize the capital gain. Until then, the investment grows, compounding further without any immediate tax burden.
Debt mutual funds generally provide higher post-tax returns than fixed deposits due to favorable tax treatment on capital gains.
Isn’t this an advantage worth considering when choosing between the two options?
Property vs Real Estate Fund
Real estate (land, homes, commercial buildings) can provide returns that outpace inflation over the long term, but investing in it requires significant capital. How many of us can afford such a large initial investment?
This is where the challenge lies, as not everyone can manage to invest in physical real estate. Moreover, real estate investments are often rife with scams. What happens if you fall victim to such schemes?
Your investment could end up in a worse position than when you started.
On the other hand, mutual funds that invest in large corporate stocks and real estate projects offer an alternative. These funds have a minimum investment of ₹5,000, and after that, you can continue investing as little as ₹1,000 per month through SIP.
You can start investing in real estate funds with as little as ₹5,000, making real estate investments accessible to more people.
Doesn’t that sound like a more accessible option for everyone?
Could a real estate fund be the solution for those who want to invest in real estate but lack the large capital required for direct property investments?
Gold Jewelry vs Gold Savings Fund
Investing in physical gold, such as gold jewelry, coins, or bars, might seem appealing, but mutual funds offering Gold ETFs and Gold Savings Funds can be more profitable. Why?
Because when purchasing physical gold, you lose about 12%-15% of its value due to making charges and wear and tear. Moreover, when selling, you may face additional depreciation, especially with old jewelry.
Think about it. If you wanted to buy just half a gram of gold, you’d need around ₹3,500. But with Gold ETFs and Gold Savings Funds, the appreciation in gold prices directly translates into profit for investors.
What’s more, you can start investing in Gold ETFs with as little as ₹75, and in Gold Savings Funds with ₹100. Isn’t this a more accessible and efficient way to invest in gold?
Another advantage? Investing in Gold ETFs requires a Demat account, but the benefits of liquidity and lower costs make it worth considering. Why not take advantage of these options for a more streamlined investment in gold?
Bank Savings Account vs Liquid Fund
A typical bank savings account offers an interest rate of around 3% annually. But is that enough for your money to grow?
Now, imagine investing in a Liquid Mutual Fund, a type of debt mutual fund that offers quick, low-risk returns. Currently, these funds provide an annual return of 6.5% to 7%.
Wouldn’t you prefer to earn higher returns with similar liquidity? What’s more? You can manage your investment in Liquid Funds effortlessly through mobile apps, making it a convenient and efficient option to grow your savings with minimal effort.
Why settle for low returns when you can easily do better?
Mutual Fund Portfolio
Bank savings accounts, Fixed Deposits, the stock market, real estate, and gold—these are all essential asset classes for investment. But did you know that you can create a well-diversified investment portfolio with just mutual funds?
Mutual funds offer access to these key asset classes, making it possible to build a portfolio that suits your financial goals.
Mutual funds offer diversification, professional management, and the potential for higher returns with relatively lower risks compared to individual stocks.
Wouldn’t it be ideal if you could work towards important milestones like your children’s education, marriage, buying a home, and retirement through a single investment strategy?
Mutual funds allow you to invest in options tailored to meet both short-term, medium-term, and long-term financial needs.
Why limit yourself when mutual funds provide such a wide array of opportunities? By choosing the right mix, you can create a strong portfolio to meet all your financial needs. Ready to build your portfolio today?
Final Takeaway
- Mutual Funds’ Popularity: SIP investments crossed ₹25,000 crore in October, reflecting growing trust in mutual funds.
- Diversified Equity Funds: Equity mutual funds provide strong returns with reduced risk compared to individual stocks.
- Affordable Real Estate Funds: Invest in real estate with as little as ₹5,000 through mutual funds.
- Gold Investment Made Easy: Gold ETFs and Savings Funds offer lower costs and greater liquidity than physical gold.
- Better Returns with Liquid Funds: Liquid funds outperform bank savings accounts with returns of 6.5%-7%.
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