The Advantages of Investing in Mutual Funds

The investments into mutual funds have been always beneficial to the investors irrespective of their ability to understand the market. Mutual funds are very beneficial for novice investors who are not very much aware of stock markets or the investors who don’t have enough time to track the market.

There are so many advantage of investing into the mutual funds that you can enjoy. These are explained as below

Professional management

This is the biggest advantage that an investor can enjoy by investing into the mutual funds.  The money of investors is managed by the professionals who are expert in this task. It has is evident that the investors invests into mutual fund units as either they have the time or don’t have the expertise to manage their own portfolios. Mutual funds present a relatively inexpensive way for small investors to get full-time managers to make and monitor investments on their behalf.

Diversification

Diversification is one of the most important benefits an investor enjoys by investing in mutual funds. It is not possible for an individual investor to diversify the investment into a large number of assets classes. With help of mutual funds, this is possible for the smallest possible investment. Diversification prevents the losses from a single investment. This risk is mitigated by gains in others.

Economies of scale 

It is not possible for the individual investors to enjoy the benefits of the economies of scale but the investor can enjoy the same by investing into mutual funds. Mutual funds buy and sell large amounts of securities at a time; their transactions costs are, therefore, lower than what individuals would have to pay.

Liquidity

The liquidity of mutual funds is very high as the mutual fund units can be traded on any business day.  So the investors convert their investments into cash. Mutual funds allow investors to convert their units into cash at any time, much like individual stocks do.

Rupee-cost averaging

Here, specific amounts are invested at regular intervals, regardless of the investment’s unit price. As a result, investors can buy more units when the price is low and fewer units when the price is high; this means lower average costs per unit over time. This is commonly referred to as systematic investment plan (SIP).

Affordability

An investor does not need to have huge money to start investing in mutual funds. Mutual funds enable even small investors to get started on mutual funds because of the minimal investment requirements. Through SIPs even the amounts as small as Rs.500 can be invested in mutual funds regularly.

Tax benefits

There are huge tax benefits that can be enjoyed by investing into mutual funds. There is tax exemption on the capital on long term investments into mutual funds. Currently, Investments held by unit holders for a period of 12 months or more qualify for capital gains and benefits of indexation. Investments in equity-linked savings schemes qualify for tax rebate under Section 80C of the Income Tax Act. Dividends are tax-free in the hands of the investors.

Convenience

Mutual funds offer several customer-friendly services. Units may be bought or sold by unit holders using mail, telephone, or the internet; investors can thus easily move their money from one fund to another. Investors can also schedule automatic investments into funds from their bank account, or arrange automatic transfers from funds into their bank account. Extensive recordkeeping services are offered to help investors track transactions, complete tax returns and follow their funds’ performance.

One Comment to “The Advantages of Investing in Mutual Funds”

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