Benefits of Investing in Mutual Funds – A close lookup

Mutual Fund

Investors are always on a look-out for a healthy investment opportunity that gives them favourable returns, but at the same time also wish their investment to be safe and secure. Mutual Fund is one such avenue which provide investors an option to derive potential returns, irrespective of investing in stock, bonds, fixed deposits and other financial instruments. However, a mutual fund is an investment vehicle which pools the resources from general public and invests in accumulated funds in debt or equity instruments that comply the objectives disclosed in the offer document.

The offer document states the characteristics of every scheme and the stock-picks chosen by the fund manager itself. It is under the ambit of a full -time fund manager who only relies on one basic principle —making investments grow. Despite the professional support obtained from a mutual fund manager, the process becomes simpler to thoroughly avail the expertise instead of buying and selling individual stocks and bonds by yourself. Moreover, it's left upto the investors– when to redeem the mutual fund investments and when not to, preferably in instances of holding-onto investments, in the hope of getting more returns. But an investor has to see what kind of benefits  he/she can accrue by investing in mutual funds. Let's take an overview exploring,

Benefits of investing in mutual funds :

Availing Professional Investment Expertise :

Many investors do not have sufficient time to gauge their personal investments on a daily basis or to investigate thousands of securities available in the financial markets. However, they prefer to take mutual funds route where their investments are being managed by experienced professional fund managers. These fund managers employ their financial expertise for assessing the performance and prospects of numerous financial instruments before choosing a particular financial asset.

Diversification :

A financial strategy that sums up “Don't put all your eggs in one basket”. Eggs denote your investment in stocks and basket means a common pool of your fund. In short, it's risky to invest all your money in only one mutual fund. Spread your investments across different industries and asset classes which help to diversify your risks. In this manner, losses suffered on some stocks can be surpassed by maximizing gains from other better- performing stocks. This leads to risk minimization.

Liquidity : 

Investors have the option to liquidate their investments as when their need arises. It is possible only, if they have invested in open-ended scheme whereas in closed -ended schemes, they can buy and sell their mutual fund units at the market value, since the units are already listed at the stock exchange.

Convenience :

Investors have the flexibility of choosing their own mutual fund scheme. Across several plans on offer such as regular investment, regular withdrawal, and dividend reinvestment plans—investors can choose to invest or withdraw as per their requirements accordingly.

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Cost-Effective:

The more the number of investors in the mutual fund industry, the lesser will be the transaction costs, commissions and other fees which in actual has to be borne by every investor. Thus, owing to the benefits of a larger scale, mutual funds are considerable less expensive as compared to the direct investment made in the capital markets.

Tax advantages :

Saving tax is an important factor which an investor prefers while deriving returns. Several tax-saving instruments are offered by mutual funds such as ELSS or equity linked saving schemes. Investors are eligible for income-tax deductions through their investments in such schemes.

Regulations :

Mutual funds are regulated under the purview of Securities and Exchange Board of India in order to protect the interests of investors. The objective is to ensure safe dealings and fair transparency while investing in stock market.

Easy Monitoring of Investments :

It becomes tedious for investors to continuously review their investment portfolios. In order to make the process easier, mutual funds provide clear statements to all investors for their ready accessibility. Hybrid or balanced funds provide the investors to cautiously choose both equity and debt funds straightaway as per their preference.

Availability of SIP facility :

Investors have the option to invest in smaller denominations on a consistent basis—this is possible only through Systematic Investment Plans. It provides the investors to reap the benefits of rupee cost averaging and can be started with a very small investment such as Rs. 500.

Switching flexibility between funds:

Mutual funds provide flexibility to investors in terms of switching between schemes or funds where they can reap better returns. Switching of schemes overcome the losses sustained from other schemes of different funds.   

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So, after knowing all the benefits discussed above, as an investor you would be pretty confident to get started with your mutual fund investments. In this manner, you'll be deriving lucrative returns.