Investing
through mutualInvesting through mutual funds has become the most popular way of
savings now-a-days. Mutual fund is a professionally managed scheme wherein they
pool money from different numerous investors to be invested in bonds, stocks
& other securities. Your investments done through MFs are safe as all the
mutual fund operators are registered with SEBI & work within framework
created to protect the investors.
Advantages Of Investing In
Mutual Funds
Mutual funds have become a very popular investment
option in India and this trend still continues with new funds and schemes being
introduced in the market regularly. Some of the key reasons why people invest
in mutual funds are outlined below.
Professional management: Mutual funds are managed by fund managers of asset
management companies. These managers employ their investment expertise to
minimise risks and maximise returns to investors. Individuals often find it
difficult to decide which assets to invest their savings in due to lack of
financial knowledge.
Diversification of
risks: Since mutual funds invest in
a number of securities, risk is diversified. The chances of all stocks
performing badly at the same time is low. Losses suffered on some stocks are
offset by gains made on others. This leads to minimization of risks.
Affordable investment
option: For those who don’t have
sizeable amounts to invest in direct equity or other instruments that require a
high initial investment, mutual funds make for an affordable investment avenue.
Also, transaction costs are spread out over a number of investors thereby
lowering individual costs.
Focused investments: All mutual funds feature schemes clearly specifying
which assets are targeted for investments, allowing investors to direct savings
to different asset classes in an organised and focused manner. It also gives
investors access to certain securities otherwise unavailable to them e.g.
foreign sectors or foreign securities which cannot be invested in by
individuals.
Choice of assets: There are various types of funds e.g. equity funds, debt
funds, money market funds, hybrid funds, sector funds, regional funds, fund of
funds, index funds etc. giving investors a wide range of choice.
Easy purchase and
redemption: Fund units can be
easily bought and sold at prevailing unit prices or NAVs. Unless there’s a
lock-in period, it is easy for investors to buy into or out of a fund thereby
providing liquidity.
Tax benefits: A number of funds/schemes have been designed to act as
tax-saving instruments e.g. ELSS or equity linked saving schemes. Investments
made in these schemes qualify for income tax deductions.
High returns: Mutual funds have been known to provide good returns on
medium and long-term investments since investors can diversify risk to enhance
overall returns.
Regulated investments: All funds come under the purview of SEBI (Securities
Exchange Board of India) which ensures dealings are as per regulations. This
provides an element of safety to investments made.
Easy to track: It can be hard for investors to regularly review their
investment portfolios. Mutual funds provide clear statements of all investments
which makes it easy for investors to keep a tab on. Hybrid or balanced funds
provide investors an avenue to access both equity and debt funds at one go in a
proportion of choice.
SIP options: Systematic Investment Plans let individuals invest small
amounts on a regular basis to avail benefits of rupee cost averaging. It’s an
alternative to those who cannot invest lump sum amounts thereby appealing to
investors across income levels. Mutual funds accept initial investments as low
as Rs.500.
Flexibility through fund
switching: Many funds offer
investors flexibility by letting investors switch between schemes or between
funds to avail better returns.
