Mutual funds have emerged as one of the most popular investment avenues for all kinds of investors. Its popularity can be understood from the fact that most of the investors now wish to participate in the equity market via mutual funds. In fact, the mutual fund returns over the past few years have outperformed most of the other investment avenues. Apart from the consistent returns, there are many other benefits of investing in mutual funds. In this article, we will walk you through the key benefits of mutual funds.
What Are The Benefits Of Mutual Funds?
• Professional Management
Mutual funds collect money from multiple investors and invest them across various asset classes with the help of professional management. The fund managers of the mutual fund companies are highly qualified and have years of experience in investing money. Another advantage of mutual funds is that the fund manager has a team of experts who extract information from every corner of the market. This kind of expertise generates faith and assurance among the investors that their money is in the safe hands.
Diversification is always important to build a good portfolio. Mutual funds invest the funds collected from various investors in different investment avenues. By spreading the money across a wider spectrum, the risk levels decline considerably. The mutual fund unit holders do not have to depend on the growth of a particular sector or stock when the portfolio is diversified. Thus, diversification is another benefit of mutual funds.
• Smaller Capital Outlay
Another advantage of mutual funds is that it requires smaller capital outlay. To build a diversified portfolio, a large investment is required in general. But in the case of mutual funds, the money from multiple investors is pooled together and invested in a diversified portfolio. Thus, an individual investor investing in the mutual fund gets the benefit of the diversified portfolio even with a smaller capital outlay.
• Economies of Scale
Mutual funds purchase and sell securities in large volumes. This makes the transaction cost much lower than what a normal retail investor would pay if he purchases or sells it through the stock broker.
• Easy to Invest
The biggest benefit of mutual funds in India is that it is easy to invest in them. You can start investing in mutual funds once you know your investment objective. Investment in mutual funds can be made depending on the schemes that suit your need and time duration. There are many types of mutual funds in the market and you can invest easily in any of them. Moreover, after investing you are not required to pay any further charges.
• Liquid in Nature
One of the benefits of mutual funds is that they are liquid in nature. The open-ended funds can be redeemed at any time. In liquid funds and debt funds, the redemption money is transferred into your bank account in T+1 days. In the case of equity funds, the redemption money is transferred into your bank account in maximum T+3 days. This makes mutual funds very popular because you have the funds available at your disposal whenever you need them.
• Invest as Per Your Needs
There are various types of mutual funds available in the market and you can invest in any of them based on your needs. Select the mutual fund that suits your risk appetite and financial goals. Various products of mutual funds have different advantages and you must analyse each one of them to select the best for yourself. Also, you can make an investment in the mutual fund of any amount you like by way of an SIP or lump sum. The amount of SIP can be as low as Rs. 500 per month.
• Disciplined Investing
The main benefit of investing in mutual funds is that it makes you a disciplined investor. With SIP in mutual funds, you invest in every phase of the market and avoid taking the wrong decisions during panic situations in the market. Systematic Investment Plans help the investors in achieving their long term financial goals successfully. If a disciplined investing approach is not followed then you might end up spending on things that do not hold much utility. In addition, SIP is the best way to cut expenses and eradicate emotions from the investment process.
• Various Modes of Investment and Withdrawal
Another benefit of mutual funds is that there are various modes to invest and withdraw the money. Investment in mutual fund schemes can be made in a lump sum or Systematic Investment Plan, systematic transfer plan of transferring money from one mutual fund scheme to another, etc. There are also many ways to withdraw money from mutual funds like lump sum withdrawal, systematic withdrawal plans, etc. Therefore, the choices available to invest and withdraw money is a big benefit of investing in mutual funds in India.
• Helps You Save Taxes
One of the benefits of mutual funds in India is that they help you save a considerable amount of tax. Equity-Linked Savings Schemes (ELSS) are diversified equity mutual funds that qualify for tax benefit up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act. Moreover, long-term capital gains made below Rs. 1 lakh in a single financial year are also tax-exempt.
The above mentioned are a few of the benefits of mutual funds. As a beginner or a seasoned investor, one must aim to invest in the mutual funds for the long term. Mutual funds have rewarded the long term investors handsomely. With the increasing popularity of mutual funds, expect many more types of mutual funds to hit the market. If you need any assistance for investing in the mutual fund market, you may contact IndiaNivesh Ltd. We suggest the right mutual fund for you after understanding your financial goals and tenure of investment.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.