While our generation appreciates the advantages that long-term financial planning brings along with them, we also need to focus on the ideal investment vehicles for fulfilling our goals to maximum capacity. Financial plans need to offer us a mixture of returns, tax efficiency as well as liquidity. This is where mutual funds come into play in our long-term financial management. Below mentioned are the top reasons why they have become the most sought-after investment options:
1. Mutual fund apps offer automatic diversification
Diversification in your portfolio can either be by default or by design. With the help of a mutual fund investment app, one can allocate their funds across equity, debt, liquid as well as gold to reduce the common concentration risk. With mutual funds, you can also reduce the risk by diversifying across various asset classes. And this ends up giving you natural risk management over the long run.
2. They are highly liquid
One of the biggest advantages when it comes to mutual funds is that they are highly liquid. While your financial plan-related options are for the long term, there must also be a contingency plan that you can fall back on in case of an emergency. Disengaging with other assets at such a time can be considered quite expensive. But in the case of mutual funds, all the categories of funds are highly liquid as well as involve minimum impact cost.
3. Good option in terms of tax efficiency
Assuming that you have to pay around 10% tax on LTCG on equity funds, the net impact on the CAGR yield is still considered to be less than 10%. Even debt funds are usually structured as capital gains along with the indexation benefit for long-term gains. Therefore making mutual funds more tax-efficient compared to any other asset class.
4. Adopting the SIP approach for long term financial planning
SIPs (Systematic Investment Plans) are a very desirable option in the case of equity and debt funds. Especially, when you are trying to build wealth over a long period of time, SIPs usually add a lot of value.
Also, there is no need to worry about the timings related to the markets. Thus, it is time that works in our favor and reduces the average cost of holding over a period of time. Right now in the market, there are various mutual fund tools like a SIP investment app that can guide us through the process of investing, making SIPs a cakewalk even for beginners.
5. Equity funds are considered great wealth creators in the long run
Here comes the most salient reason for holding equity funds in anyone’s financial plan. For an investor, these are just passive investments but can be tremendous wealth-making sources over a long period of time. Even with conservative returns, equity funds can still generate substantial wealth if the discipline of SIP is sustained over a long period of time. The longer you save, the more your principal earns returns thus giving you more earnings.
6. Mutual funds can help in managing your retirement corpus
While planning for your retirement, you need to make sure that the power of equities works in your favor. At the same time, you also need to ensure that at the time of retirement these funds are invested in the form of an SWP (Systematic Withdrawal Plan) so that you can combine the best of withdrawal as well as debt market returns.
