Advantages of mutual funds

Mutual funds are the best choice for many people when it comes to investment options for building wealth. The most attractive feature is that it allows investors to diversify their money, even if their investment is a small amount. A mutual fund is a great investment choice for many reasons. Still, many people think that it is a complex option for investment. But in reality, it has a very simple and easy investment philosophy. Investors can enjoy many benefits like professional money management, diversification, and transparency by choosing this investment vehicle.  One must understand the advantages of mutual funds before investing his or her money in them.

Provides ample opportunities for wealth creation

People realized that investing is the best way to create wealth rather than merely saving their money. Even if mutual funds have a certain degree of risks, it is a safe and stable investment option. The reason is that this investment choice provides many opportunities for investors for wealth creation. Some of its fund types are riskier than investing in stocks, but it has exceptional potential for generating huge returns. High yield bond funds and stock funds are examples of such fund types designed for high returns by investing in risky assets.

It is a popular tool for investment

Mutual funds have become one of the most preferred investment tools in India over the last few years. The main reason for the popularity of this instrument is the advantages that it offers. Every investor considers mutual funds while they decide their strategy for the investment portfolio. But investing in it has its own advantages and disadvantages like any other investment tool.

Advantages of investing in mutual fund schemes

If you have plans to invest in mutual funds, understand its advantages and disadvantages. Getting an idea of this instrument could make your investment decision simple. It also makes you wiser about where to invest. A great attraction of mutual funds is that fund managers guide the investors in all aspects. They help you to get a deep understanding of different types of mutual funds like equity funds, debt funds, income mutual funds, and liquid funds. Get an idea about the benefits of investing in mutual funds for making an informed decision. The main advantages of mutual funds are:

• Diversification

Fund managers are keen to diversify the portfolio of their investors to reduce the potential risk of investment. They invest in different investments like the debt market, equity market, and money market instruments. It protects your fund if an instrument performs poorly in terms of returns.

• Liquidity

Another key benefit of investing in mutual funds is their liquidity. Everybody prefers to invest in an instrument that can easily buy and sold without a huge difference in its price. If the scheme you choose is not a close-ended one, you can easily buy and sell your mutual funds. So, liquidity is not a big issue with mutual funds, and you can quickly sell your units whenever you have an urgent requirement for money.

But ensure to consider the pre-exit penalty and exit load whenever you sell mutual funds urgently. High charges of them might force you to reconsider your decision of selling units immediately.

• Professional fund management

A fund manager manages the mutual fund provided by each fund house. He and his team decide the tool and invest your money after proper research and analysis of several investment tools. They decide the best instrument eligible for investment as per the guidelines and invest the money accordingly.

• It is the best investment tool to suit your financial goals

Since different types of mutual funds are available in the market, you can choose the right type that suits your financial goals. Mutual funds can be debt or equity or open-ended or close-ended. Each investor has different financial goals, and they can choose a mutual fund scheme that suits their financial objective.

• Tax efficiency

Many people prefer choosing mutual funds for investing their money because of their tax-saving capacity. The tax deduction is available for investors under section 80C of the Income Tax Act who choose tax-saving funds for investing their money. Taxation on the mutual funds sales depends on several factors. The tax rate on equity-oriented funds can be from 0% to 15%. Besides, investors can enjoy a low tax rate on return for their investment if they invest money in mutual funds.

• Low cost on bulk transactions

Processing charges and other fees are involved in mutual fund investment. These charges can be fixed or variable. But if the investor buys bulk funds, he or she can save good money on fixed charges.

• Cost efficiency

Some mutual funds have low expense ratios and zero loads. So, investors must try to compare the charges before investing in mutual funds.

• Opportunity to invest in smaller denominations

Another highlight of this instrument is that the investments in mutual funds can be as low as Rs.500/-. If you plan to invest in this instrument, you can start investing even with Rs.500/-. You have the option to make a lump sum amount also when money is available.

• Quick and easy investing

A great feature of mutual funds is that investing in them is an easy and quick process. Pick the right mutual fund and start investing in it. Your agent or the fund house will diversify your portfolio as per your needs once you start investing.

• Safety

Investing in mutual funds is safe because the SEBI and the AMFI scrutinizing and controlling the fund houses constantly. You have the choice to check the genuineness of asset managers and fund houses through SEBI. Their grievance redressal mechanism helps you whenever you face any issues.

• Opt for SIP or one-time investment

You can choose a SIP or a lump sum investment based on your income level and current budget.

Disadvantage of mutual funds

Even if mutual funds offer plenty of benefits to investors, it also has its own disadvantages. You have to pay a charge to manage your mutual fund. Most of the mutual funds have lock-in periods of 5 to 8 years, and investors cannot earn any returns during this period. Dilution is another disadvantage of the mutual fund. A mutual fund gives you the benefit of diversification, but it can lead to averaging out of your return on your investment.

The Mutual fund is the most powerful tool to create wealth. It is a safe and stable investment choice that provides many opportunities for aggressive investors for wealth creation. If you are ready to take a certain degree of risk, you can create wealth by investing in mutual funds. In this investment option, your current assets work for you based on your investment goals. Of course, some mutual fund types are risky but have the potential to generate high returns. With so many advantages like diversification and professional money management, it is wise to approach your mutual fund advisor to start your SIP to build your wealth.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh