Are you looking to invest in stocks but are overwhelmed by complexities of the stock market? or You do not have time to study the market? You do not understand which stocks to invest in or don’t have enough resources to figure out the same. Mutual funds can be a good fit for you. But, before that you must know What are Mutual Funds? Its clear meaning and also become aware of the different benefits of investing in mutual funds in India.
What are Mutual Funds? Meaning
Mutual funds are professionally run (by qualified fund management professionals) investment management schemes which pool together money of individual investors and invest in stocks, bonds, and other securities. Mutual funds are run by Asset Management Companies. In this post, we shall discuss some of the Mutual Funds Benefits that you must know before investing. The numerous mutual funds advantages have been described in a pretty simple manner.
Mutual funds provide opportunities to retail and institutional investors to participate in equity markets, with the help of professional fund managers who manage these funds on behalf of investors.
Mutual funds, no doubt have been able to democratise equity and debt markets and have made them accessible to a larger section of the investor community. In the coming section, we shall summarise the mutual funds benefits offered to investors.
Mutual Funds: 10 Benefits You must Know
1. Professional Management at a fraction of cost:
Mutual funds pool together many funds and hence they can have the large asset base to spread their costs. This lets them hire professional managers and researchers to manage your money at a fraction of the cost. As an individual investor, it will be impossible for anyone to put together such formidable resources.
2. Everyone can have diversified portfolio:
For retail investors who have small investments, getting a diversified portfolio while investing in equities is a challenge as they cannot invest in too many stocks to get an optimal diversified portfolio. Mutual funds solve this problem. Individual investors can invest as less as Rs 500 and still get units in a diversified portfolio of securities.
Let’s say, if you invest Rs.1000 in ICICI Prudential Value Discovery Fund (G) you will have a diversified portfolio of stocks, a sample of which is shown below.
So, Mutual funds provides ultimate diversification for investors even with low or very low investments.
Note: This is just an example to explain and should not be regarded as a professional advice.
3. You Can defer your taxes:
How Deferment of taxes help you (have assumed 30 % Tax rate)
| Investment | Year 0 | Year 1 | Year 2 | Year 3( withdrawl) | Return |
| Mutual fund | 100000 | 110000 | 121000 | 123170 | 23.17 %for 3 years |
| Fixed deposit | 100000 | 107000 | 114490 | 122505 | 22.5 % for 3 years |
4. Economies of Scale:
Mutual funds with their large investment pool provide unparalleled economies of scales to retail investors. This means, mutual funds with huge assets under management can spread all expenses over a large number of assets. Hence, they can afford to spend significant funds in research, hire the best talent to manage money.
5. Asset class to match your risk profile:
Mutual funds invest equity assets as well as debt assets and also in a combination of two. So, depending on your risk profile and appetite you can choose a mutual fund which optimizes the risk and gives you right returns. From capital preservation to growing wealth mutual fund schemes are available for all financial requirements and within growth.
You can choose to invest in aggressive portfolios with higher growth potential like mid cap or small cap or stick to relatively safer assets like large cap funds.
6. Systematic investments and withdrawals:
Another good investment principle that mutual funds have pioneered is Systematic investments and withdrawals. Some of you who have invested in equity markets will understand the concept of timing the market. Retail investors do not know when to enter or exit from the market. Mutual funds provide systematic investment planning options where you can periodically invest in mutual funds. Hence, there is no need to worry about timing the market. Similarly, mutual funds also provide systematic withdrawal options.
7. Liquidity at no or very less cost:
Mutual funds provide unparalleled liquidity to its investors. In most of the funds, you can take money out at any time or few funds provide periodic time frames when you can take money out. With SEBI clamping down on exit, loads cost of withdrawal has also reduced significantly.
8. Tax Benefits:
ELSS or Equity linked saving schemes also provide tax deductions for investments made in these funds. They come with a lock-in period of 3 years and provide ways to invest your money in equities and helps them grow. So, you get tax benefits as well as growth.
9. Convenience of Investments:
Mutual funds provide a convenient way to invest money, you can invest online as well as offline. You can get all your updates online, sell online, buy online change your funds online. Your accounts are linked to your mutual fund folios and hence money can be moved easily back to your accounts. Moreover, you also get access to handy mutual fund apps that ease out the entire investment process.
10. Well Regulated Industry, so you are in safe hands:
Mutual funds are closely regulated by SEBI and the regulator takes cares of investor interests before anyone else. SEBI has been proactively providing guidelines to ensure transparency and ensuring good investment practices are followed by all funds.
Now, that you are clear on What are mutual funds and gone through some mutual funds benefits or advantages, you must keep these in mind while investing. Take a wise investment decision!
Disclaimer: This post is not a financial advice. Mutual funds are subject to market risk. Please follow due diligence and be cautious while investing your money in any of the risky asset classes or consult your financial adviser before taking an investment decision. Fintrakk.com or any of its representatives are not responsible for any loss that might happen due to your investments.
Thanks for this informative article. Also, you need to invest in mutual funds with proper knowledge. Understand which are the best mutual funds based on your risk appetite.
Nice Article,
You should always spend time researching mutual fund information before you start investing in any. Mutual funds are basically a scheme where you pool in some amount of capital that ends up buying other securities like bonds, shares, and stocks of a growing corporation.
If the corporation does well financially, then the investors get in return profits which can be used to buy further shares. These are the mutual funds basics. Investing in them just means putting in some of your assets into a scheme and waiting for a proper return.
Investing helps you reach your financial goals and you get bigger returns if you invest in an efficient mutual fund scheme. Also, there are some tax saving schemes you can invest in (even if you do not have surplus capital) that promise good returns and you can use that money to buy a property or to invest in bigger schemes.