Most of the mutual fund investment advisors advise making a long-term investment in mutual funds. Investments that are made keeping a long-term perspective in mind gives more time to the funds to increase while also instilling a financial discipline in the investor. Mutual funds are market-linked securities. The markets act very differently in both the short term and long term. The short term involves high volatility while long-term investments experience mitigated volatility effects.
Benefits of Long Term Investments
Some of the benefits that justify the long term investments made in mutual funds for people looking to increase their wealth can be listed as follows:
- Tax Benefits: Capital gains accrued from mutual funds investments made for more than one year are exempted from any form of tax liabilities. Tax exemptions are also given by the Indian government on any mutual fund investments under the Income Tax act section 80C. According to this section, investors enjoy a tax deduction of a maximum of 1.5 lakhs from the taxable income to reduce the financial obligations.
- More frugality: The rupee cost averaging approach followed in mutual funds is one of the major benefits of these investments. It mainly refers to regular investments made by investors at regular intervals of time. Investments start from as low as Rs 500 per month and can be increased as per a person’s capacity. This regular investment is used to buy stocks and market-linked securities for wealth accumulation in the long run.
- Power of compounding: Two of the most important factors that need to be considered before making any long-term investments are the investor’s age and his or her financial obligations. Investments made at an early age allow the fund to grow through the power of compounding. Under this, interests received from the investment get added to the main amount over the years, in turn earning interest over the same. Simplified, this means that the more time investments are given better is the financial potential of your funds.
- Diversification: Mutual fund investments diversify the portfolio. It is one of the biggest benefits of mutual fund investments giving access to a huge number of stocks in the market of different caps.
- Period: Though it may seem like a secondary benefit to many, a longer period ensures the better success of your investment. After all, it is a commonly known fact that success in any field is proportional to the time invested in the same. Short-term investments do not give you enough time to reap benefits or capitalizing on the opportunities presented by the market. A good mutual fund investment needs to be given substantial time so as to grow and develop.
In the end, the only thing that matters most in any mutual fund investment- whether long term or short term is the right understanding of the money. Make an informed decision after gathering all the facts and information regarding your investment fund. If you are looking to clear all your doubts regarding the same, you can contact our financial experts for best investment advice.