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Mutual funds are ideal for investors who want to invest in various kinds of schemes with different investment objectives but do not have sufficient time and expertise to pick winning stocks. Mutual fund investments give you the advantage of professional management, lower transaction costs, and diversification, liquidity and tax benefits.
Advantages of investing in Mutual Funds
- Professional Management : The biggest advantage of investing in mutual funds is that they are managed by qualified and professional expertise that are backed by a dedicated investment research team which analyses the performance and prospects of companies and selects suitable investments.
- Portfolio Diversification: Since one of the primary rules of investment is to diversify portfolios, a mutual fund can be a simple and successful way to accomplish this goal. They invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks make losses at the same time and in the same proportion.
- Convenient Administration: Investing in a mutual fund reduces paperwork and helps you to avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.
- Return Potential: Over a medium to long-term, mutual funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.
- Low Costs: Mutual funds are one of the best investment options considering the costs involved. They are a relatively less expensive if compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
- Liquidity: In open-ended schemes, you can get your money back at net asset value related prices from the mutual fund itself, except equity linked savings schemes which has lock in period of 3 years . With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of direct repurchase at NAV related prices which some close-ended and interval schemes offer you periodically.
- Transparency: You get regular information on the value of your investment through account statement and in addition to disclosure on the investments made by your scheme through portfolios disclosures, which indicates the proportion invested in each class of assets. The Scheme related documents also specifies the investment strategy and asset allocation for each scheme.
- Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs.
- Variety of Schemes: You can find a mutual fund scheme that matches almost exactly what you are looking for from an investment. This could be related to both your risk tolerance and your investment
- Well Regulated: All mutual funds are registered with SEBI and they function within the regulatory provisions framed to protect the interests of investors. The operations of mutual funds are regularly monitored by SEBI.
- Conclusion: Over the period, mutual funds have come out as a very easy investing vehicle because of its different advantages like diversification, professional expertise and returns etc. Due to its exceptional features, investors are turning their preference to mutual funds over the traditional instruments.
