5 Ways Mutual Funds will Help you save more

Mutual funds are a preferred investment option for those looking to create wealth from their current income. But did you know that they can also help you save a lot of money over the long run?

Consider the 5 ways in which mutual funds help you save more:

1 It inculcates the habit of disciplined savings.

Saving money regularly may become difficult at certain points in life. But when you start a mutual fund, the money is auto-debited from your account at regular intervals. This is especially true of SIPs (Systematic Investment Plans) in which you pay incremental sums of money. On the whole, mutual funds encourage you to create savings for periodic payment, in that you are careful about maintaining account balances for the auto-debit to take place.

2 It creates savings faster with market-linked returns.

You can certainly create wealth over the long term by keeping your money in the savings bank account and earning 4% savings account interest. But the same savings fund can grow much faster when you get market linked returns on it. The highest performing mutual fundsa like ELSS and ULIPs can offer returns ranging from 10% to 20% in well performing markets. This means that the same fund of money shows higher returns over the same time frame.

3 It augments the funds you create from fixed deposits.

You might have opened a fixed deposit account with your bank. This is a good investment option, since it offers interest rates of 7% from leading banks (higher rate of interest for senior citizen fixed deposits). However, if the markets are doing well, you could invest the fixed deposit money in a suitable mutual fund for higher growth and savings. But do bear in mind that while the fixed deposit pays a constant rate of interest throughout its tenure, the mutual fund rate is dependent on market forces.

4 They promote tax efficiency.

Mutual funds further your savings by offering tax rebates. You get a tax deduction up to Rs 1.5 lakh per year under Sec 80C for investing in ELSS funds. Meanwhile, there are different exemptions for equity and debt funds under the various LTCG (Long Term Capital Gains) and STCG (Short Term Capital Gains) tax laws. You are also not charged DDT (Dividend Distribution Tax) on dividends earned from equity funds.

5 Different funds help different goals.

There are different types of mutual funds with varying maturity, lock-in periods and rate of returns. Planning your portfolio to comprise of different kinds of funds offers diversification and the chance to realise different milestones at different points in time. Thus, you need not create separate savings funds for different goals.

About This Author

Shaheen Shaikh http://www.adrclinic.co.uk Joined: April 29th, 2018