Investment in a mutual fund has become quite popular financial activities among the common investors in recent times. A large number of common persons have shown their interest in this segment of financial service. Its popularity is growing day by day just as the banking and insurance services.
A Mutual fund company collects money collects funds from a large number of investors and invest the same in the financial market through different market instruments and make a profit, such profits are then distributed to the investors in proportion to their investment. Broadly such types of investment are meant for those individuals who do not have sufficient ground knowledge of finance and money market and thus unable to take appropriate investment decisions.
The fund managers of the mutual fund company are trained professionals who are expert in financial matter. They take investment decisions collectively on behalf of the investors. They wisely plan and execute investment strategies which are synchronized with the investment objectives.
Though one may be well aware of the advantages of investing in a mutual fund, there are some lesser-known advantages which you may not be aware of.
Here are some such benefits, which the investment in a mutual fund can give to you.
- Smart investment options: – If you invest in any specific sector or industry, you carry the risk of loss if that industry fails or suffers loss. When you invest in a mutual fund, the associated risk is relatively low as most of the mutual fund schemes spread the investment in multiple assets and sectors for reducing the risk. If anyone of the sectors faces a loss, then the gives from other sectors will compensate for this loss. This risk mitigation benefit maker the mutual fund investment smarter as compared to other types of investment.
- Low-cost investment: – Since Mutual Fund Company gets money from a large number of investors, the cost and changes of managing assets are comparatively low, as it is divided between the number of investors.
- Highly regulated: – Such investments are safeguarded by securities and exchange board of India (SEBI). This body has laid down certain rules and regulations which is followed by all mutual fund companies. This body also ensures that the investment works in favor of both investors and providers without any unfair treatment. Under the supervision and monitoring of SEBI, the funds are safe and well regulated.
- Professionally managed: – These funds are professionally managed by experts and experienced fund managers. Even the beginners who do not have any knowledge about the financial market can invest in such funds with the help of expert managers. They design your portfolios, make strategies on your behalf and guide you through every step of investment.
- Multiple options: – In this type of investment, people have the option to choose the funds as per their investment objectives and the types of returns they wish to derive from their investments. For example, if you want returns in a short period, you can invest in short term funds. On the other hand, if you wish to meet your future financial goals, you must go for long term funds. Mutual funds also offer the regular flow of income throughout the tenure in the form of dividend payouts. If your investment objective is to grow your capital throughout the investment tenure, you can choose the growth options for earning a regular income.
- Lump sum investment or in installments: – There is an investment option of the systemic installment method of investment under SIP option. This is an ideal option for a young person who may not have sufficient money to invest in bulk. Where SIP allows investment in mutual funds in monthly small installments.
- Low level of investment: – The investor can start with as little Rs. 500 – every month under systematic investment plan (SIP).
- Diversification of risk: – The risk associated in a mutual fund can be diversified while high-risk fund tends to offer high returns, the chances of loss are quite high. A medium risk fund tends to balance the risk and tends to give out a medium return and low-risk fund has lower risk, this giving lowest returns. So, based on your risk bearing ability, you can diversify the risk by choosing a suitable fund matching your requirement.
- Growth oriented Investment: – Most of the mutual funds invest in growth oriented equity market. Therefore investors get a chance to benefit from the growing Indian economy. Thought investments in equity and equity related securities are vulnerable to certain risk, they generate considerable high returns. Such fund invests in the stocks and bonds of high-grade companies. This enables investors to do their individual research and invest in the desired stocks their own without any involvement of the intermediary.
- High liquidity options: – Here you have options to choose between regular funds and tax funds. While in a regular plan you can liquidate you’re a few months after making an investment, whereas in tax saver fund, the principal, as well as the dividend, can be withdrawn only after the completion of the three-year lock-in period. As a result of which, you can plan for future finances in a better way while generating high capital growth by the end of investment tenure.
- Easy purchase and redemption: – The units of mutual funds can be easily purchased and redeemed at the prevailing NAV (Net asset value) on all working days. Since there is no restriction on the liquidation of the units, the investors have easy control over liquidity.
- Switching facility: – Mutual funds come with an option of fund switching. This means that investors can switch between schemes or between to avail better terms or better returns from their investment. This facility is available only between the scheme of the same fund and not between the funds offered by a particular company.
- Easy tracking of records: – The mutual fund companies provide detailed and clear statements of all investments. Which makes it easy to track their investment? You can also download the statement from the companies website.
- Tax Saving Benefits: – In investment in mutual funds entitles you for tax benefits under section some of Income-tax Act 1961. For a total amount of Rs. 150,000/-. This features lower down your tax liabilities.
Most of the above advantages are exclusive and help investors to gain high returns with less risk. However since mutual funds are subjected to market risks, choose funds according to your risk taking ability and take the guidance of the experts before investing.