KNOWLEDGE CENTRE Mutual Fund Basics / What Are The Benefits Of Mutual Funds?

What Are The Benefits Of Mutual Funds?

Why invest in mutual funds?

Since the inception of mutual funds, they have been a popular investment option for investors. The simplicity of understanding and the features provides great benefits to the investors with limited knowledge, money and time. Let us see what the benefits of investing in mutual funds are:

What are the benefits of investing in mutual funds:

  1. Diversification of assets to reduce risk
  2. Easy division of stocks which reduces economic strain on the investor
  3. Liquidity of funds
  4. Cost benefit brought by the virtue of number of investors
  5. Professional management of funds
  6. Easy investment process
  7. Regulated by SEBI

Let us now understand each of these benefits of mutual fund in detail:

• Diversification

The main benefit of investing in mutual funds is asset diversification. For example, an investor can buy stocks in the retail sector and then buy some other stocks in the industrial sector at the same time. This will help them to reduce the impact of market fluctuations and save the losses on the portfolio. Buying them can be a costly affair. Other mutual fund benefits are instant diversification and asset allocation without having to pay too much. Debt funds allow you to invest in debt instruments such as bank FDs, money market instruments, and government/corporate bonds. And then there are balanced mutual funds that offer you exposure to both equities and debt instruments.

• Easy to divide stocks

Many investors cannot buy a lot of stocks with the money they have especially after deducting commission. However, with mutual funds, investors can buy in smaller denominations. This, in turn, will help them make periodic investments through monthly systematic investment plans (SIP) when taking advantage of rupee cost averaging. Therefore, rather than wait for the money accumulate, you can invest in mutual funds.

• Liquidity

Another major advantage of mutual funds is the ability to get in and out without hassle. The investor can sell their mutual funds in a short period without having much difference between sale price and current market value.

• Cost Benefit

Mutual funds do not eat away a large chunk of your money. For example, when you buy 1 piece of apple, the cost will be less when a dozen of apples is bought together. This also happens in the buy and sale of securities. If you buy one security at a time, the cost will be high. However, equity mutual funds are able to take advantage of the buying and selling size and this helps in reducing the transaction cost.

• Professional Expertise

Investing requires financial know-how and skills. It requires a constant study of the markets and various industries and companies. To be a successful investor, you need someone professional to manage your money. In India, the fund managers are acquiring global certificates like CFA, MBA that provides them with knowledge of the investing world.

• Ease of Process

If you have a bank account and a PAN number, you can start investing right away. Since all the funds are well integrated with the system, the money will arrive at your bank account. This is a major advantage of investing in mutual funds.

You have to fill up a form attach a copy of your PAN and sign a cheque to start investing. In the top 8-10 cities of India there are many collection points and distributors that make it easy to send the application.

• Regulated by SEBI

Indian equity mutual funds are well regulated by the Securities Exchange Board of India (SEBI). This streamlines the process of how mutual funds work in different AMCs as the institute monitors the transactions and maintains transparency on the mutual funds. This helps to make the investor an informed choice. You can keep track of all the investment and the transactions made on the money.

Also, besides the above-mentioned advantage of mutual funds, you can enjoy tax benefits by investing in ELSS funds. The more time for which your money is invested in mutual funds, the more advantage you enjoy. So what are you waiting for? Go ahead, invest with Angel Bee!

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