One often finds it difficult to dedicate to investments owing to their busy schedule and expertise-oriented profession. Even if they could, it isn’t certain they would be able to gain knowledge of all types of securities they would want to invest in. It further comes down to analyzing the companies the individual wants to invest in. These are best left to professionals.
Mutual Funds do just that with a fraction of the price of individual investments and analysis.
1. Investment managed by experts
Instead of being a novice or a newbie who finds it difficult to understand the complex world of finances and does not have enough time to allocate to researching stocks and other financial instruments. A mutual fund provides you with an expert who chooses certain financial products to invest in as described in the mutual fund category with an aim of a certain corpus growth with minimum risk.
Mutual Funds have the advantage of being liquid in their nature. The units of a mutual fund can be sold or exited at any point in time. However, it does carry a pre-exit penalty or an exit load if redeemed within a short period of time.
It is what I consider to be the most important aspect of mutual funds. It diversifies the corpus as stipulated by the category of a fund by the expert who is a fund manager. Diversification considerably lowers your risk during volatility since not all stocks start declining in tandem and vice versa.
4. The flexibility of corpus to be invested
Apart from a minimum stipulated amount that ranges from 1000 to 10000 rupees, mutual funds are an accessible financial product in terms of investment. SIP (systematic investment plans) can be started with a meager sum of 500 rupees.
Mutual Fund schemes are founded by an Asset Management Company and offered to investors through
- Brokerage Firms
- Registrar’s like Karvy and CAMS
- AMC’s themselves
- Online Mutual Fund Investment platform
- Agents and banks
These channels and intermediaries are accessible to all and make investments in mutual fund available to anyone who is interested.
6. There are schemes for all aspirations
Mutual Funds are defined by categories or types which have defined investment into certain kinds of securities. These generally vary in terms of risk and return. A conservative investor might choose a lower risk and return investment whereas an aggressive one might choose a higher growth and return investment.
SEBI regulates all AMCs thus regulating Mutual Funds. SEBI guidelines specifically ask to color-code each mutual fund scheme. These color codes denote the level of risk of each mutual fund.
- Blue indicates lower risk
- Yellow indicates medium risk
- Brown indicates high risk
Investors can also verify the details of the fund manager and his experience with solvency to Assets Under Management.
8. Tax Saver
Mutual Funds are taxed on the nature of the investment and the tenure of the investment.
ELSS (Equity Linked Saving Scheme) are mutual funds that have a tax exemption of 1.5 lakhs per year under section 80C. This particular category of mutual fund has a better tax-saving capacity than NPS, PPF, and tax-saving FDs. Else are also known as tax-saving mutual funds.
9. Lowers the cost of investment
There are numerous investors in a mutual fund, this collection of corpus and further investment into securities spreads out the cost of investment among all investors thus lowering the cost of individual investors if they would choose to do it all by themselves.