Selecting from multiple investment choices can be a daunting task. Often equity investors, especially those new to investing can get overwhelmed with too many investment choices, which makes selecting the right investment avenue further difficult.

The common choices are usually Mutual Funds or direct investments in company shares through the stock market. While both avenues have enormous potential to contribute to an investor’s wealth, it is important to assess factors like market volatility, investor’s financial goals, risk appetite etc before making any important investment decisions.

For a young investor, be it millennials or Gen Z, the biggest advantage in hand is time. Given the relatively younger age band, they have the advantage of time on their hand to start early, invest for the long term and let compounding play out. Let’s now focus on mutual funds as an investment vehicle to look at what makes it a relevant vehicle for one’s wealth creation journey.

1. Variety - There are many Mutual funds available for every type of investor to choose from, including the likes of equity, debt, hybrid funds etc., all offering investors a range of benefits. Considering the different asset classes and financial goals, investors may choose the ones that are well suited to help them accomplish their financial goals.

2. Diversification - The power of diversification must never be underestimated. Given that it is almost impossible to accurately assess which asset can lead to more returns in a specific time period, the money should be invested across multiple asset classes. Mutual funds provide the solution to invest in equity, debt and commodities, either through separate funds in different asset classes or through the hybrid category. Diversification also helps to mitigate the risks across the portfolio.

Sometimes, a specific asset class might perform poorly, and another might provide unexpectedly great returns; if the investors have both of those assets in their portfolio, it could safeguard their invested money and provide some stability and appreciation to the portfolio.

3. Flexibility - For novices who are just beginning their investment journey and possess limited capital, Mutual Funds can be of great help as they can be started at a nominal amount of just Rs.500. Some mutual fund houses allow Systematic Investment Plan (SIPs) of even Rs.100! This is very helpful for salaried individuals, especially if one has just about started working, to invest as per one’s budget and comfort. Value-added products such as SIP, Systematic Withdrawal Plan, Systematic Transfer Plan, and others, are also ways one can optimise one’s mutual fund investments.

4. Liquidity – In case of unavoidable circumstances where having liquid money could be a necessity, mutual funds can come to the rescue; the units can easily be redeemed at any point in time. Immovable assets like a house or land can be difficult to sell in a short span, hence it is always beneficial to make investments in asset classes that give the advantage of easy liquidity.

5. Regular Updates – The norms and regulations from SEBI mandate fund houses to release timely disclosures on portfolios and update investors on any changes in a fund’s mechanism or attributes. This helps to keep investors better informed and protect their interests.

In conclusion, mutual funds encourage investors to inculcate the habit and discipline of regular saving and investing to grow their wealth over the long term. A simple tool like an SIP can ensure one remains diligent towards their wealth creation journey while managing their other commitments.

Even though investors must decide their investments based on their risk appetite and ability to deal with market volatility, the details about mutual funds stated above may help make an informed decision.

The views expressed in this article are for knowledge/information purpose only and is not a recommendation, offer or solicitation of business or to buy or sell any securities or to adopt any investment strategy. Aditya Birla Sun Life AMC Limited (“ABSLAMC”) /Aditya Birla Sun Life Mutual Fund (“the Fund”) is not guaranteeing/offering/communicating any indicative yield/returns on investments.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.