Any investment scheme is associated with risk and return. One such investment instrument is Mutual Funds. It refers to the pool of money gathered from individual investors by different AMCs or Asset Management Companies. These assets are allocated in securities like bonds, stock, shares, debts, government securities, etc.
The main focus of mutual fund schemes is capital appreciation. This is entirely dependent on the performance of the securities you have invested in. Though the risks associated with these funds are higher, again, the returns are handsome. The gain earned from the investment is distributed among the investors.
8 Key Benefits of Mutual Fund Investment
1. Simplicity and Accessibility –
Mutual Funds are easy to understand. A beginner doesn’t have to gather complete knowledge about these funds. A professional team manages them. To purchase a mutual fund, you can either visit mutual fund companies or an agent. Investors pool their money in a secured fund and are invested in securities. The profit earned is distributed among the investors. At specific points, you may face some critical terms. Well, knowing this becomes easy when you keep on investing for years.
2. Diversification of the Investment Portfolio –
Mutual Funds allow every investor to diversify their portfolio. Reduces the impact of market fluctuations. If you encounter a loss from any stock, it will be balanced by the profit earned from other assets. They give exposure to the Equity and debt class. Investing in one of them may not be effective, as both have their advantages and disadvantages separately.
3. Liquidity –
The investors can redeem their units at any time. Unlike other investment tools, especially bank FDs and others, here you can get in and out of an investment at your will. But remember the pre-exit penalty and exit load in mutual funds. These are a few charges by the AMC so that an investor doesn’t withdraw his investment unnecessarily. To avoid this fee, you can purchase a scheme that has omitted the exit load charges. The exit load changes in the mutual fund are deducted from the Net Asset Value. The remaining amount is handed over to the investor.
4. Satisfy Financial Goals –
The most exciting part of mutual fund investment is it starts from Rs 500 and has no upper limit. These are available for both long-term and short-term financial goals. Investment in such funds is dependent on the investor’s income, risk appetite, total expense, and reasons for investment. Long-term investment goals can be retirement planning, or a child’s higher education and marriage, so on.
5. Professional Management –
Professional fund managers manage the funds. The fund performance is highly dependent on them. You don’t need to worry about asset allocation in consideration of the market conditions. Here all your financial situations are handled by experts. If any stocks lose their worth due to market fluctuations, the fund manager sells the stocks and invests the sum on other securities. A professional team analyses the market and manages your funds. Hence you don’t need to spend time learning the investment jargon and market fluctuations.
6. Variety of Mutual Funds –
Different types of Mutual Funds are available in the market.
Depending on asset class, it can be classified as – Equity funds, Debt funds, and hybrid funds. Equity funds are hazardous but provide greater returns. Again debt funds are for risk-averse investors. The return rate from debt funds is moderate but stable. To enjoy low risk and higher steady returns, investment in hybrid funds is the best option.
Depending on the investment objective, mutual funds can be classified as – Growth Funds, Income Funds, Liquid Funds, Tax-Saving Funds, Capital Protection Funds, and Fixed Maturity Funds.
Based on the risk factors, these funds can be further categorized as – Ultra low-risk, Low-risk, Medium-risk, and High-risk funds. Index funds are specialized mutual funds that include several other sub-categories.
Depending on the structure of the fund, these are – Open-ended, Close-ended, and interval funds.
7. The Flexibility of Investment –
You get an opportunity to decide the investment method. These are – lump sum investment and SIP investment. If you have sufficient capital to invest in a fund, you may go for a lump sum investment. But if you are facing a financial crisis or are a newcomer in the field, then the best way is SIP investment. You need to pay a small amount of money every month. The amount remains fixed. You get sufficient time to understand all your investments.
8. Tax Deductions and Regulation under SEBI –
Mutual Funds are associated with attractive tax benefits. This is not applicable in the case of bank FDs, PPFs, and other similar investment tools. The longer the financial goal, the greater is the chance of earning more.
SEBI regulates these funds. Thus, it maintains transparency. Investors can remain well informed about their investments. They can keep track of all the money transactions and investments. Therefore it is safe in comparison to other investments.
Mutual funds, like other investment tools, have pros and cons. When you can earn higher, you are getting exposed to more significant market risks. If you have a good risk appetite, then you can invest in Equity and earn more. But if you are a risk-averse investor, then look for debt funds. The returns are low but stable and are not affected much by the market fluctuations. The early ’20s is the best time to invest in mutual funds. With growing age, the capacity to take losses reduces, and so are the risk-taking abilities.