You must ensure you make consistent, disciplined investments that generate inflation-adjusted returns given the present economic situation and the rising inflation rates. Due to their expert administration, affordable prices, and manageable investment quantities, mutual fund investments have remained popular among investors. In essence, an Asset Management Company (AMC) or Fund House collects funds from investors and distributes the funds across various asset classes. Today these AMCs also allow one to invest in mutual funds online. So, let’s quickly go through the advantages of investing in mutual funds.
Advantages of Investing in Mutual Funds
Mutual funds stand out because they don’t subscribe to the “one size fits all” idea. Instead, they provide investment opportunities to those who fit into various age groups, income ranges, risk appetites, etc. Mutual funds may be suitable for both those with prior market expertise and those who are just starting out on their financial path. While investing in mutual funds has numerous advantages, a few of them are described below.
Well Regulated
All mutual fund companies are required to register with the Securities and Exchange Board of India (SEBI). They also have to publish all the information pertaining to the mutual fund schemes they provide. This makes mutual funds easier to comprehend and could enable investors to evaluate them before investing.
Managed By Experts
Investments in mutual funds are overseen by groups of knowledgeable fund managers who actively manage the performance of the mutual fund. They seek to achieve prospective returns that are in line with a mutual fund scheme’s degree of risk.
Risk Diversification
Purchasing shares in a mutual fund is a simple approach to spread your risk by investing in a variety of assets and securities, such as gold, debt, and equities. By diversifying, the risk of one asset class is offset by the potential of some other assets. Other assets in the portfolio might not be affected and might even improve in value if the value of one investment falls. Therefore, risk diversification is a major advantage one gets by investing in mutual funds. So, we can say mutual funds make it easy to invest in the share market for those who want to avoid risk.
Easy to Invest
Investments in mutual funds often require a longer time horizon. However, at the current Net Asset Value (NAV) of the day, you can purchase and sell Mutual Fund units. Debt funds, such as liquid funds, have a shorter redemption period than most funds, for example. ELSS Funds, on the other hand, have a statutory 3-year lock-in period and are less liquid. Further, you can choose to invest in lump sum or make smaller regular investments. A flat contribution can be put into a fund. Else, you can start with Systematic Investment Plans (SIPs). With SIP, you may invest money at regular intervals—weekly, monthly, quarterly, etc.—for as little as INR 100.
Low Cost
Mutual funds have a low expenditure ratio as a result of significant economies of scale. The ratio of the operating cost of a fund to its net asset value (NAV) is known as the expense ratio. Administration, management, advertising-related costs, etc. are some of the examples of operating expenses of a scheme. Regulation 52 of the SEBI Mutual Fund Regulations, 1996 specifies the maximum expense ratios for specific schemes.
Liquidity
On any business day (when the stock markets and/or banks are open), you can simply redeem (liquidate) units of open-ended mutual fund schemes for your financial demands. Thus, mutual funds give you quick access to your money. Depending on the kind of scheme, the redemption amount is paid on the following business day in the case of liquid funds and overnight funds. After redemption, the redemption amount is placed in your bank account within one day to three or four days.
Tax Benefits
Investing in mutual funds, such as the Equity Linked Savings Scheme, has tax advantages as well. Under Section 80C of the IT Act, 1961, investments in ELSS are eligible for yearly income deductions of up to INR 150,000.
Conclusion
Mutual funds provide a wealth of advantages, which makes them outstanding investing tools. Make sure the mutual fund schemes you choose are in line with your objectives and time horizons for investing. Enjoy inflation-adjusted gains, tax advantages, and portfolio diversity while the fund managers weave their magic.
There are some reputed financial services firms nowadays that facilitate investing in the best mutual funds of the country. Kotak Securities is one such premier institution that offers several mutual funds on its website or online trading app. You can get all the details of a fund and directly invest in it. Since the intermediary charges are quite minimal you can hold a myriad of funds in your portfolio.