Advantages of Mutual Funds

In the last few years, more and more people are keen to invest their money in mutual funds. Mutual funds are strategically placed to mitigate the risk of the investors. Long-term investments in mutual funds have turned out to be very fruitful for the investors over the years, giving them one of the highest returns in comparison to traditional investments.

Advantages of Mutual Funds Investments

Professional Management

Mutual funds are managed by professional fund managers who are considered experts in their field. Fund managers run an analysis on the value of the stock, the invested company product and its current and future market position, past performance of the stock etc. They are also responsible for investing in stocks which are in sync with the fund’s strategy and goals of the investor. Mutual fund houses or Fund managers have access to resources that are above and beyond the reach of the individual or retail investor.

Liquidity

Liquidity is one of the major advantages of the mutual fund. It gives you the freedom to take your money in and out without any hassle. Money market fund gives you the opportunity to have your money invested for as short a duration as a day. However, do look out for the fees associated with the selling of the mutual funds.

Easy Process

Thanks to the online technology today, buying, managing, selling of mutual funds has become a hassle-free convenient task for the investors. You can just log in to the mutual fund house website and purchase mutual funds by following simple steps of instructions. Through online mode, you can also manage your investment by getting updates on the performance of your mutual fund on a daily basis. Net Asset Value (NAV) gives you simple understanding of how your mutual fund is performing.

Smart Investment

Anything we buy for money, we try to do research which can be time-consuming if the required data is not available. If the information is available on hand easily with simple parameters for comparison, it becomes an easy task for the investor. Investing in mutual funds is a smart investment option as the research and performance data collection is done by the mutual fund houses themselves. All you have to do is check the ratings and review the mutual funds. You can also compare the mutual funds basis the easy parameters for comparisons like the level of risk, past performance, returns, and price. As all the information is easily available, it becomes easy for the investor to make smart decisions based on their investment goals strategy.

More Choices for Selection

Another big advantage of a mutual fund is that they come in different types suiting the needs of wider requirements of various kinds of investors. Depending upon your financial goals, you can choose to invest in the appropriate category of mutual funds available.

Liquid Mutual Funds: If you want to only invest your money for a short term, then you can invest in liquid mutual funds.

Short term mutual funds: If you don't want to give a commitment towards your investment for a short period which is something like 1 to 3 years, then short-term mutual funds will serve the purpose for you.

ELSS tax saving mutual funds: For all your tax saving needs, ELSS scheme in mutual funds will be an ideal selection for you.

Long-term mutual funds: For investors who are willing to keep their money invested in the long term, for them, equity funds are the best selection.

Choice of Risk

In equity funds, depending on the risk appetite of investors, they can choose high-risk mid cap or small cap funds or less risky large-cap or diversified funds. For investors who want a balance between mid-cap and large-cap, balanced funds are the ideal choice.

Can I invest in Instalments or lump sums

You can invest in instalments through SIP (Systematic Investment Plan). Today, there are funds in which you can start a SIP for as low as INR 100 a month. SIP scheme is just like a recurring bank deposit scheme of a bank which makes saving easy and does not put a financial burden on the investor.

No Big Investment Required

Different from other investments like investing in real estate, stocks, gold etc., mutual funds don't require a big investment. As discussed above, you can start investing in mutual funds for as low as INR 100 a month through SIP (Systematic Investment Plan) scheme.

Tax Benefits

Mutual funds are considered to be more tax efficient than other types of financial instruments available in the market. ELSS, which is a specific class of mutual funds, are exempt from taxation under section 80C of Income Tax Act 1961 for a limit of INR 1.5 lakhs. The following are the advantages of ELSS:

  • Substitute route to invest in the stock market
  • Only 3-year lock-in period
  • A tax benefit of up to INR 1.5 lakh
  • Best returns over a longer period of time

Well regulated

Mutual funds are regulated by SEBI (Securities and Exchange Board of India). All mutual funds houses need to make the necessary disclosure. The past performance of the mutual fund is available for view to all. The NAV (Net Asset Value) gets updated daily and you can view the details about the mutual fund which make it a very transparent investment for an investor.

Low Cost of Asset Management

Mutual funds have money from many investors clubbed together in one fund. This way the asset management cost gets divided amongst all the investors and there is no burden felt by the investors for the asset management cost. For example – If you buy something in bulk, then you get discount and the price works out cheaper than a single product. The same applies to stocks - if you buy just one, the transaction fees works out expensive in comparison to the stock than if you buy multiple stocks in one shot. Mutual funds help to make the transaction on a larger scale ensuring the transaction charges don’t have much effect on the income of the mutual fund.

Taking Advantage of a Growing Economy

As the mutual funds have a direct relation to the stock market, the invested money will grow if the economy is growing and doing well. This growth is difficult to get into the traditional savings like bank fixed deposit, postal schemes, and other financial instruments.

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