Benefits of Mutual Fund for Self-Employed Individuals

It is not being self-employed these days. Obviously, you are your own boss and don't have to take orders from anyone, but as a self-employed individual, you may have to be effective at financial planning so that you never run out of finances. Whether you are running a big business, a small enterprise or a one-man company, you need to channelize your savings and make sure that even in tumultuous events, you have enough capital to sustain financially. 

If you want to become financially independent so that even if your self-employment comes to a standstill you remain financially secured, you may have to get going with financial planning. Setting realistic long term and short term goals is essential as you get a clearer picture of how much capital you need in hand to continue systematic investing. This is crucial for self-employed individuals because their income pattern may not remain constant and may fluctuate from time to time. Hence, it is necessary for them to know the exact figure that they need to have to continue investing without having any major glitches.

Mutual funds may be a way for both salaried and self-employed individuals to invest their savings in the capital market without possessing much knowledge about the financial markets. If you are self-employed and wondering if mutual fund investments are something that you take into consideration to increase your chances of building wealth in the long term, here is something that you might want to explore and understand.

What is a mutual fund?

Mutual funds are professionally managed funds where the fund manager buys/sells securities in accordance with the scheme’s investment objective. AMCs / fund houses usually collect money from investors sharing a common investment objective and invest this pool of funds across the Indian economy in multiple assets like equity, debt, corporate bonds, government securities, call money, etc. in the Mutual Fund Investment App.

SEBI, the regulatory body of mutual funds here in India describe them as, “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with the quantum of money invested by them. Investors of mutual funds are known as unitholders.”

Are there any benefits of investing in mutual funds?

Mutual funds are available in SIP and lumpsum investment 

If you have surplus cash parked which you feel is just sitting idle and can be invested in an investment vehicle like mutual funds, you may opt for the lumpsum investment. When you make a lumpsum investment in mutual funds, you make the payment towards the mutual fund right at the beginning of the investment cycle. A good thing about lumpsum investment is that you investors receive mutual fund units in bulk in quantum with the money invested and depending on the fund’s existing NAV. 

SIP or Systematic Investment Plan, on the other hand, is easy and hassle free way to continue investing to achieve long term financial goals like retirement planning. You can invest in a mutual fund SIP from the comfort of your laptop or mobile phone and a decent internet connection. With SIP, all one has to do is instruct their bank and every month on a fixed date, a predetermined amount is debited from the investor’s savings account and electronically transferred to the mutual fund. An individual can continue investing in mutual funds via SIP until their investment objective is achieved. SIP investors also benefit from compounding and rupee cost averaging. Investing in mutual funds via SIP may inculcate the discipline of regular investing which is the key to building a decent corpus in the long run.

Mutual funds are available in growth and IDCW option

Mutual funds generally offer two kinds of scheme options for investors - growth and IDCW. In the growth option, if the mutual fund manages to make any profits, these gains are invested back into the scheme. Over a period of time, this may result in the rise of the net asset value of the mutual fund scheme. If you are investing in mutual funds for a longer time period, the growth option might align with your investment objective.

On the other hand, if you are investing in mutual funds for a regular income you may consider investing in the IDCW option. Investors receive IDCW only when the scheme makes a profit, and that too at the sole discretion of the fund manager.

Mutual funds offer diversification

 You know that mutual funds invest in multiple assets depending on their investment objective. This way, your finances are spread out and hence even if one sector collapses, the other asset classes usually balance it out. This way mutual funds not only offer diversification but also tend to bring down the risk factor of your overall investment portfolio.

There are multiple reasons why investments in mutual funds may prove to be beneficial. However, if you are new to investing and do not possess much knowledge about mutual funds it is better to consult a financial advisor before investing your hard earned money in any type of scheme.

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