Why Have Mutual Funds Become A Go-To Investment Choice in Recent Times?

Mutual funds are an investment avenue mostly suitable for investors with time constraints to track down the market. Mutual funds generally pool investments from investors and put them in a variety of asset classes. They are managed by fund managers but owned by the investors.
The Indian mutual fund industry has nearly tripled since 2020. The AUM has grown from Rs.27 trillion to nearly Rs.70 trillion, giving a CAGR of 24.14%. The mutual fund folios have also seen a significant rise from 8.88 crore to 23.23 crore in this time frame. Let us look at what could be the possible reasons for this overwhelming growth.

Impact of COVID-19

The disruption caused by the pandemic made individuals rethink their investment and savings choices. After everyone was locked inside their homes and the world hit a pause, people started spending more time online exploring various investment options. Post-COVID mutual funds turned out to be one such instrument, as they are diversified and comparatively less risky than direct equity. Individuals got more inclined towards it due to its investor-friendly model.

Access to Digital Platforms

One of the major reasons for the boost in mutual fund investments is the growth of digital platforms and mobile phone applications. This ease of access has made investing in mutual funds just a few clicks away.

Rising Financial Awareness

Due to the constant promotion of ‘Mutual Fund Sahi Hai!’, the growth of financial literacy campaigns, and the quality of content available online, the proportion of informed investors has risen. People are aware of inflation, wealth creation, and the power of compounding. Special mention to financial influencers for continuously educating the audience about mutual funds across various mass engagement platforms.

Professional Management

Expertise and time are the major reasons that restrict individuals from entering the market. Being handled by qualified fund managers, mutual funds have solved this issue to a very great extent. As they handle the research, asset allocation, and portfolio management, it has become easy for individuals with very little financial knowledge to enter the market.

Diversification

As said by many experts, diversification is a key factor of a good portfolio. Mutual funds allocate funds across various asset classes ranging from equity to commodities. Diversification helps in mitigating the overall market volatility, further minimising the risk.

Flexibility & SIPs

A mutual fund is a very versatile investment instrument that can cater to the needs of all sorts of investors. Having equity funds for aggressive and growth-driven investors with a slightly higher risk appetite and debt funds for the conservative class of investors, mutual funds have it all covered. This can be considered the USP of mutual funds, making them appealing to a wide spectrum of investors.
Another game changer is the SIP (Systematic Investment Plan) feature. It allows investors to invest small, fixed amounts at regular intervals. This has made the young professionals start their journey towards wealth creation without experiencing any financial pressure.

Conclusion

The surge in mutual funds is not an accident but a collective outcome of accessibility, professional management, diversification, and an evolving investor mindset. As people are prioritising financial security and wealth creation, mutual funds will continue to be the bridge between cautious saving and smart investing. Mutual funds have turned from being just another investment option to being the most preferred choice in recent times.