A mutual fund is a type of investment in which money will be collected from a customer pool. Professionals will invest the collected money in various kinds of investment options such as stocks and bonds. The fund managers will manage the funds in a very efficient manner so that the returns are optimized. You should be aware of the benefits of mutual funds before investing.
Mutual Fund is one of the best investment options, and its benefits include convenience, higher returns, tax-saving potential, and fulfillment of life goals. There are various types and classes of mutual funds selected as per your risk appetite and financial goals. You can choose short-term as well as long-term term funds as per your convenience.
- Liquidity – Compared to other kinds of investment options, mutual funds offer a high degree of liquidity. You can invest and redeem very easily. Investors will know the growth of the fund based on the NAV (Net Asset Value). You will not want to exit a fund as long as the performance of the fund is good. However, the exit option should be exercised to fulfill your emergency financial needs.
- Flexibility – Unless you invest in ELSS (Equity Linked Savings Scheme), there will not be a lock-in period. You can invest money and redeem units as per your convenience. If you want to invest in tax-savings fixed deposits of banks, you should wait for at least a 5-year lock-in period.
- Higher returns – The returns obtained through the mutual funds are higher than traditional investment options. There are various kinds of mutual funds that can be selected as per the investor’s risk appetite. If the risk is high, the returns will be high. Senior citizens and investors will low risk appetite can go for debt funds. The returns obtained by debt funds will be higher than returns obtained from fixed deposits. In the past ten years, the equity segment returns are between 11% and 15%.
- Professional management – The funds are managed by professionals to be managed in a very efficient manner. A group of financial experts will guide the fund manager, and the best decision will be taken to deliver maximum returns on the investment. The fund manager will identify the best stocks available in the market and help investors deliver higher returns.
- Transparency – The funds are invested transparently. The investor will be able to understand the performance of the fund at any particular time. The information is available online so that the fund performance can be assessed very easily. You can understand the expenses involved in fund management. If you are not satisfied with a fund’s performance, you can switch over to another scheme very easily.
- Online purchase – With the advent of the internet and online banking facilities, you can invest in mutual funds from the comforts of your home or office. The simple one-time registration on the fund house’s website will let you purchase various kinds of funds very easily. As you buy units online, you will reap higher returns.
- SIP – Systematic Investment Plan (SIP) is the easiest way of mutual fund investment. You can join a SIP scheme by investing as little as Rs. 500 per month. It is possible to invest in mutual funds systematically, and you can withdraw funds systematically. The money will be drawn from the bank account through the systematic investment, and it will be invested in mutual funds. You can also go for a systematic withdrawal option, in which case the money will be withdrawn from the mutual fund, and it will be credited into the bank account.
- Automatic investment – The dividends and capital gains can be invested into a mutual fund scheme automatically, and you can avoid the exit load.
- Dividend option – If you need regular cash flow, you can choose the dividend option. The mutual fund scheme’s profits will be credited directly into the bank account of the investor. There are monthly as well as annual dividend options which can be selected as per your convenience.
- Informed choice – Mutual fund prospectus offers a wealth of information about the mutual fund scheme. The fund manager’s purpose, risk appetite, capital appreciation, credentials of the fund manager, and other crucial information will be shared with the customer. Hence, the investor will be able to make the most appropriate decision without any difficulty.
- Diversification – As you participate in a mutual fund scheme, you will have access to multiple stocks and bonds. If you buy individual stocks, your exposure will increase, and you may suffer losses. Mutual funds are available in various styles and types. You can invest in sector funds, bond funds, stock funds, money market mutual funds, and target-date mutual funds as per your convenience. A diversified portfolio can be built at a low cost, and you can make the most of your investment.
- Income tax benefits – There are income tax benefits associated with the mutual fund schemes. If you invest in equity-oriented funds, there will not be LTCG up to Rs. 1.5 lakh per year. The ELSS (Equity-Linked Savings Scheme) plan will help you get an exemption from the income tax on the contribution and returns. The principal is exempted under Section 80C of the income tax act. The maturity proceeds are exempted from the tax under Section 10 (10D).
Mutual funds will give investors a unique advantage as investors will be able to participate in stocks and bonds with professional fund managers’ help. The risk perception is almost nil with debt funds. The equity funds pose the highest risk, and the returns are in tune with the risk. The entry load is nil, and the exit load of a mutual fund scheme is very less than the cancellation charges of deposits in a bank. You can choose funds as per the risk appetite and financial goals. If you go for long-term investment, mutual funds will deliver the best returns.