Finance

The Potential Benefits of Mutual Funds

A mutual fund is an investment in which money will be collected from a customer pool. Professionals will invest the collected money in various 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 Funds

Benefits

Mutual Fund is one of the best investment options, and its benefits include convenience, higher returns, tax-saving potential, and fulfillment of life goals. Various types and classes of mutual funds are selected per your risk appetite and financial goals. You can choose short-term as well as long-term term funds at your convenience.

  • Liquidity – Unlike other investment options, mutual funds offer a high degree of liquidity. You can invest and redeem very easily. Investors will know the fund’s growth based on the NAV (Net Asset Value). You will not want to exit a fund if the fund’s performance 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. If you want to invest in bank tax-savings fixed deposits, you should wait for at least a 5-year lock-in period. You can invest money and redeem units at your convenience.
  • Higher returns – The returns obtained through 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 increased. Senior citizens and investors will low-risk appetites can go for debt funds. The recoveries from debt funds will be higher than those from fixed deposits. The equity segment returns in the past ten years have been between 11% and 15%.
  • Professional management – The funds are managed by professionals to be handled 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 can understand the fund’s performance at any particular time. The information is available online, so the fund performance can be assessed very easily. You can understand the expenses involved in fund management. If you are unsatisfied with a fund’s performance, you can easily switch to another scheme.
  • 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.
  • SIPSystematic Investment Plan (SIP) is the easiest way of mutual fund investment. You can join a SIP scheme by investing as little as Rs. 500 monthly. 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 systematic investment and invested in mutual funds. You can also go for a recurring withdrawal option, in which case the money will be withdrawn from the mutual fund and credited into the bank account.
  • Automatic investment – The dividends and capital gains can be automatically invested into a mutual fund scheme, and you can avoid the exit load.
  • Dividend option – If you need regular cash flow, you can choose the dividend option. There are monthly as well as annual dividend options that can be selected at your convenience. The mutual fund scheme’s profits will be credited directly into the investor’s bank account.
  • Informed choice – Mutual fund prospectus offers a wealth of information about the mutual fund scheme. The fund manager’s purpose, risk appetite, capital appreciation, the fund manager’s credentials, 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 partiYoumultiple stocks and bonds. If you buy individual stocks by participating in a mutual fund scheme, 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 at your convenience. A diversified portfolio can be built at a low cost, and you can make the most of your investment.
  • Income tax benefits – Income tax benefits are associated with 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 Section 10 (10D) tax.

Conclusion

Mutual funds will give investors a unique advantage as investors will participate in stocks and bonds with professional fund managers’ help. The risk perception is almost nil with debt funds. Equity funds pose the highest risk, and the returns are in tune with the threat. 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. Mutual funds will deliver the best returns if you go for long-term investments.

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