Mutual funds offer numerous advantages for investors in India. With professional management and diversification, mutual funds provide a convenient and efficient way to invest in a variety of securities. These investment vehicles also offer liquidity and flexibility, allowing investors to easily buy and sell their shares. Moreover, mutual funds in India are regulated by SEBI (Securities and Exchange Board of India), providing a sense of security and transparency for investors. Consider mutual fund investment to take advantage of these benefits and grow your wealth.
A Mutual Fund is an investment option to invest in the equity or bond market where money from many people is pooled together to buy a variety of stocks, bonds, or other securities. This mix of investments is managed by a professional fund manager, providing the individuals a portfolio that is structured to match the investment objectives stated in the fund’s prospectus.
By investing in a Mutual Fund, individuals get the access to a broad range of investments, which can help reduce risk compared to investing in a single stock or bond. Investors earn returns based on the fund’s performance minus any fees or expenses charged (which is referred as Expense Ratio). In this way, it can give small or individual investors access to professionally managed portfolios of equities, bonds, and other asset classes.
ADVANTAGES OF INVESTING IN MUTUAL FUNDS
Professional Managers
Investors may not have the time or required knowledge and resources to conduct their research and purchase individual stocks or bonds. A mutual fund is managed by a full-time, professional fund manager who has the expertise, experience and resources to actively buy, sell and monitor investments. A fund manager continuously monitors investments and reshuffles the portfolio time to time accordingly to get the highest possible returns, which is the most important objective of investing in any Fund.
Risk Diversification
Buying shares in a mutual fund is an easy way to diversify your investments across different companies and asset classes such as equity, debt and gold, which helps in mitigating the risk. So you don’t have to worry that all your eggs are in one basket. This is proven beneficial when an underlying security of a given mutual fund scheme experiences market headwinds. With diversification, the risk associated with one asset class is countered by the others. If one or two shares decrease in value, the other shares or bonds might balance your portfolio. Hence diversification is one of the best ways to mitigate your portfolio risk.
Easiness to invest in low amount
For many investors, it could be costlier to invest directly in all the securities held by a single Mutual Fund. But the fund gives you the benefit to invest in a large number of securities at a very low amount. Some funds offer as low as Rs. 100/- a month to invest. Hence it is more affordable.
Liquidity
You can easily redeem or liquidate your units of mutual fund whenever you have to meet your financial needs on any business day (when the stock markets and/or banks are open). So you have easy access to your money. After requesting for redemption, you get your amount in your bank account in 3-4 working days.
Low Cost
An important advantage of mutual funds is their low cost. Due to huge amount of money they are managing, mutual fund managers fix their expense ratio low. It’s the annual expense charged by the mutual fund manager from the mutual fund holder. It’s usually expressed in percentage, like 0.5%, 1%, and so on. Obviously, lower the expense ratio, higher the return will be. But expense ratio should not be the only criteria to judge any fund.
Well-Regulated
Mutual Funds are regulated by the capital regulator, Securities and exchange board of India (SEBI https://www.sebi.gov.in/) under SEBI (Mutual Fund) Regulations, 1996. SEBI has laid down strict rules and regulations keeping investors’ protection, transparency with appropriate risk mitigation framework and fair valuation principles. So, investors should not worry about their investment which are invested in the fund.
Tax Benefits
Investment in ELSS up to Rs. 1,50,000/- a year qualifies for tax benefit u/s 80C of Income Tax Act, 1961. Mutual fund investments when held for a longer term are tax efficient. Although there are more ways a taxpayer can save his tax under section 80C of Income Tax Act, 1960.
In the later blogs, I will be sharing the best funds based on different parameters, i.e., best past returns, based on its market cap, sectors, etc.