Every working person in this world thinks about retiring after some age and relaxing. For this many people want to invest but they don’t want to put their hard-earned money somewhere where there is a risk of losing it. Some go for government bonds while some opt for mutual funds. To know about funds and bonds, we must know about them in detail and what are the advantages of mutual funds over government bonds.
A bond is a debt instrument through which companies and governments ask for capital from the public. Just like MNCs, the government also needs huge capital for various programs such as infrastructure, social programs, etc. which is far beyond what any bank can provide. When a person purchases a bond, the borrower will provide interest to the lender after some specific date in the future. If we look into mutual funds, it is a type of investment tool where huge capital is invested by many shareholders. The funds are managed by someone who is a professional also called a fund manager. Profits and losses in mutual funds are shared accordingly among all the shareholders.
Advantages of mutual funds
Mutual funds have proved to be beneficial because:
● Reduced risks
Mutual funds are famous for their reduced risks because it uses the concept of diversification.
● Gradual but sureshot growth
It helps your investment grow gradually because the interest income from your funds can be used to purchase additional shares in the company.
● Low management fee
Hiring a professional who helps you in managing your funds is costly but in mutual funds, you pay for a small management fee as your part.
It is way too easy to purchase and handle than any other investment scheme.
Mutual funds vs government bonds
Here are a few advantages that mutual funds have over government bonds:
In mutual funds, the investors do not own any part of the company but mere units of a scheme which reduces the risk factor by a lot. Owning a bond can be tiresome and is not preferred by everyone. The young generation does not want to lose their money easily and wants high returns.
● No requirement of expert knowledge
One of the main advantages of mutual funds over bonds is that it is very easy to understand. Even a person without prior investment knowledge can learn and be ready to invest in no time. But, this is not the case with government bonds; it requires knowledge about types, interest rates, risks, taxes, etc.
High return in less time is the reason why mutual funds are such a common option among the public. As the government bonds offer only fixed rates over shares whereas mutual funds offer high returns depending upon the market situation.
● Period of maturity
One of the factors is that government bonds are not preferred because of their long period of maturity. A typical government can take up to 5 years to return the money to the user but mutual funds give the return in a very short period.
● Buying process
The whole process of buying a mutual fund till selling it is very easy to handle. Government bonds require a lot of time and knowledge to understand the transactions. Even investing in Tax mutual funds, you will be able to save more because there are fewer tax deductions.
There are numerous reasons where it proves that mutual funds are better than government bonds. If you are earning less money every month then, you can go for SIP (Systematic Investment Plan) in which you can invest money regularly and earn a large capital in the future. You can also invest a large capital one-time in any firm. The advantages of mutual funds exceed that of government bonds and every person should opt for them.