Investing in mutual funds stands as an exceptionally reliable and effective avenue for managing your finances. It offers investors a myriad of benefits, including convenience, diverse opportunities, and transparency. In this blog, we will delve into the advantages of mutual funds comprehensively, providing you with insights into why they are such a favored choice among investors. Let us see what are various advantages of investing in Mutual Funds.
Professional Management
Investors might lack the time or necessary expertise and tools to independently research and buy individual stocks or bonds. A mutual fund is overseen by dedicated, skilled money managers who possess the necessary knowledge, experience, and resources to actively trade investments. These professionals continuously oversee investments, adjusting the portfolio as needed to align with the fund’s objectives. The active portfolio management conducted by seasoned fund managers stands as a key advantage of mutual funds. This by far is top reason in that can be considered as one of the advantages of Mutual Funds as most of retail investors will benefit from professional experts.
Risk Diversification
Investing in a mutual fund offers an effortless method to diversify your investments across various securities and asset types like stocks, bonds, and gold. This diversification helps spread the risk, preventing all your investments from being concentrated in one area. This strategy proves valuable when a particular security in a mutual fund faces market challenges. Diversification ensures that the risk associated with one asset class is balanced by others.
So, if one investment declines in value, the impact may be offset by the performance of other investments, which could even increase in value. In essence, if a specific part of your portfolio encounters difficulties, you won’t lose the entire value of your investment. Therefore, risk diversification emerges as a significant advantage of mutual fund investments.
Diversification is one of the key advantages of Mutual Funds.
Affordability & Convenience (Invest Small Amounts)
For numerous investors, buying all the individual securities held by a single mutual fund could prove more expensive. In contrast, the minimum initial investments required for most mutual funds are more affordable. In most cases, you can start as low as Rs 500/- via SIP.
Liquidity
You can conveniently sell (liquidate) units of open-ended mutual fund schemes to fulfill your financial requirements on any business day (when the stock markets and/or banks are open), providing easy access to your funds. After redemption, the amount is typically credited to your bank account within one to 3-4 days, depending on the scheme type. For instance, in the case of Liquid Funds and Overnight Funds, the redemption amount is disbursed on the next business day. However, please note that units of closed-ended mutual fund schemes can only be redeemed upon maturity. Similarly, units of ELSS have a 3-year lock-in period and can be liquidated only after
Low Cost
A key benefit of mutual funds is their affordability, largely due to significant economies of scale. Mutual fund schemes typically feature a low expense ratio, which reflects the annual operating expenses of a scheme as a percentage of the fund’s daily net assets. These operating expenses encompass administrative costs, management fees, advertising expenses, and similar items. The SEBI Mutual Fund Regulations of 1996 specify the limits of the expense ratio for different types of schemes under Regulation 52.
Well-Regulated
Mutual Funds in India are overseen by the Securities and Exchange Board of India (SEBI) under the SEBI (Mutual Funds) Regulations of 1996. SEBI has established strict guidelines and regulations focused on safeguarding investors, ensuring transparency, implementing effective risk management frameworks, and upholding fair valuation principles.
Mutual Fund daily publish their NAVs. They also disclose their holdings every month. SEBI regulates the funds so that they do not deviate from mandate of fund or category guidelines.
Tax Benefits
Investing in Equity Linked Savings Schemes (ELSS) up to ₹1,50,000 is eligible for tax benefits under section 80C of the Income Tax Act, 1961. Additionally, mutual fund investments held for a longer duration tend to be tax-efficient.
If you know more advantages of Mutual Funds, please let me know in comments.
