Unfolding the many advantages of mutual funds

Be it buying a small phone or a big house, you always look for maximum benefits, don’t you? Naturally, while putting your money in investments, you would want to go for one that offers several advantages. And this is why you can consider investing in mutual funds. After all, it offers a plethora of benefits. Let’s have a look at some of them,

Given the many advantages of mutual funds, this investment vehicle has emerged as a popular option offering individuals an opportunity to participate in the financial markets with relative ease and convenience. Advantages of investing in mutual funds include aspects such as their diversified portfolios, professional management, and flexible investment options, and owing to these benefits of mutual funds in India, the avenue has garnered attention from both novice and seasoned investors alike.

When considering investment options, understanding the advantages of mutual funds becomes crucial. One of the key benefits of investing in mutual funds revolves around the diversification these schemes offer investors - helping spread risk and potentially mitigating the impact of individual securities on the overall investment. If you are still wondering what are the advantages of mutual funds, then there are aspects such as the opportunity for individuals to access professional fund managers who possess extensive market knowledge and expertise. Such managers help you ensure optimal outcomes for your investment, thus depicting another of the many benefits of mutual funds in India.

In India, the route has also gained significant popularity due to the potential for high returns and tax benefits they offer, indicating more advantages of investing in mutual funds. These investments are subject to favourable tax regulations, making them an attractive option for Indian investors looking to optimise their investment returns while minimising tax liabilities. To further understand what are the advantages of mutual funds, Let’s have a look at some of them, shall we?

The following advantages of mutual funds will leave you impressed!

1. Professional management:If you had to choose between building a house yourself and outsourcing it, you would definitely choose the latter to ensure that everything is done professionally.

With mutual funds too, there are professional fund managers who manage your money.

They have the experience and expertise to buy, sell and track investments. Such experts monitor investments continuously and rebalance, if need be, to ensure that the fund’s objectives are met.

2. Risk diversification:Rumour has it that the only two people who know the secret formula of a very famous cold drink brand aren’t allowed to fly on a plane together. This is their way of diversifying risk.

Mutual funds too diversify risks. How? By investing in different asset classes such as equity, debt and gold.

Thus, the risks or losses associated with one asset class are set off against the gains from others. Moreover, you can have a diversified portfolio even with a single asset class. For example, if you choose equity mutual funds, you can manage risks by investing in different sectors, themes, countries, market capitalisations, etc.

3. Affordability:When you hear the word investor, you immediately think of a person in a formal suit and tie with a briefcase in hand. But an investor does not have to be someone with a lot of money. Even someone with very limited income can invest in mutual funds and, thus, can become an investor. Undeniably, mutual fund investments offer a distinctive advantage when it comes to affordability, making them an accessible investment option for a wide range of individuals, and this is among the key benefits of investing in mutual funds. There are many investment vehicles that require a substantial upfront capital, like Alternative Investment Funds or Portfolio Management Services or even direct equity investment, but mutual funds allow investors to start with relatively small amounts, eliminating barriers to entry and enabling individuals with varying financial capabilities to benefit from potential growth opportunities. Therefore, this is among the major advantages of investing in mutual funds.

A Systematic Investment Plan (SIP), a mode of investing in mutual funds regularly, allows you to invest even with as low as  Rs. 500/month. 

4. Liquidity:Some investments block your money. For example, when you put your money in fixed deposits, you cannot withdraw it before the tenure ends. Premature withdrawals may be allowed in some cases but certainly not without a penalty.

With mutual funds, you don’t have to worry about liquidity.

Except for tax-saving mutual funds, you can redeem your open-ended mutual funds at any time.

5. Tax benefits:Tax-saving mutual funds? Yes, you read it right!

Equity Linked Saving Schemes (ELSS) are tax-saving mutual funds that allow you to save tax on investments up to Rs. 1.5 lakh annually.

And well, that means you can save up to Rs. 46,800 in taxes every year.

6. Well-regulated:A class with a monitor is always more disciplined than the ones without it. Mutual funds too have a monitor and regulator called SEBI (The Securities and Exchange Board of India).

SEBI has laid down strict rules and guidelines to ensure that there is complete transparency in the working of mutual funds in order to protect the rights and interests of investors.

7. Variety:Entering the world of mutual funds is like entering a food court. It’s exciting as well as satisfying because there are different types of mutual funds to suit different needs, goals, tenures and risk appetites. For example, if you are a high-risk investor looking to build wealth for your old age, you may find equity mutual funds suitable for your retirement planning. On the other hand, if your risk appetite is low and you want to invest for your short-term goals, you can opt for debt mutual funds.

Conclusion

Mutual funds are inherently diversified investments that help you manage investment risks. Apart from being well-regulated and managed professionally, they offer several benefits such as liquidity, affordability, convenience, tax benefits, etc. Now, with so many advantages, you are already searching “Find a mutual fund guide near you” to get started, aren’t you? Well, the idea isn’t bad!

An investor education initiative by Edelweiss Mutual Fund

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