11 Benefits You Need To Know While Investing In Mutual Funds

When you talk about getting maximum returns on your investments in India, then Mutual Funds definitely takes the cake. These funds offer you impressive rates of interest on the money you invest and as a result, the amount of money received is also more when compared to the amount offered by the banks and other financial institutions. At the moment, you can easily find companies offering different lucrative schemes. They offer a wide variety of schemes that can prove lucrative to you as an investor.

Currently, there are a plethora of schemes available and you can easily make a choice as per your needs and requirements. These schemes are mainly classified on the basis on the basis of both structure and their objectives. Following are some of the common types are –

  • Open-end funds
  • Equity funds
  • Large capital funds
  • Tax saving funds
  • Closed-end funds
  • Growth funds
  • Balanced funds
  • Value funds

Each of the above-mentioned types has varied strategies and objectives. On the basis of this, there is variation in their performances levels as well.

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11 benefits you need to memorise while investing in mutual funds

Benefits of Mutual Funds

If you are still in a quandary of how you can be benefitted with the mutual funds, here are some of its key benefits of mutual funds you need to know making your decision-making process easier –

Offers diversification in your investment portfolio

So, you are thinking of investing in the stock market via mutual funds, considering the fact that these funds reduce the risk element considerably. Without mutual funds, you will need to buy varied individual securities to branch out your investments and moreover, it exposes you to higher instability.

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Liquidity

It won’t be wrong to term mutual funds as liquid investments. Unless these funds have a lock-in, you have easy access to your money. Usually, mutual funds take their own sweet time to return your money. Since these funds are well-integrated with the banks, most of the funds can be conveniently sent to your respective bank accounts.

Well Regulated  

In India, it is the responsibility of Securities and Exchange Board of India, the main regulatory body, to regulate the mutual funds. SEBI also helps in providing transparency on the mutual funds and it really comes handy when you want to make an informed choice. SEBI requires the mutual funds to divulge their portfolios at least six monthly; this really comes handy in keeping a track whether the funds are being invested in line with its objectives or not. However, most of the mutual funds voluntarily declare their portfolio once every month.

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Professional fund management

Are you still dragging your feet on making mutual fund investment because you don’t have time to align your investment portfolio? If this is so, then mutual funds have got your back. Rest assured your mutual fund investment will be hassle-free as the investments are looked after experts and fund managers having years of experience. They are the ones who will keep a close check on how the funds are performing, review your investments, and will realign your asset allocation so that you get to have optimum returns.

Diversification

There is an old saying – “Don’t put all your eggs in one basket”. This saying has both financial and mathematical basis to it. Let us assume if you are investing most of your savings in one single security (mainly happens when you have employee stock options (ESOPs) from your company or one large investment in your portfolio owing to significant gains) or a single type security, you are exposed to any risk related to the investments.

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To bring down the risk level, make sure you invest in different types of securities such that they don’t move identically. Usually, when the equity market performs, debt market doesn’t yield lucrative returns. Note the whole state on low yields on debt securities over the past couple of years while equities had lucrative returns. Likewise, you need to make investments in gold, real estate, or global securities for you to provide optimal diversification.

So, if you are planning to this on your own, be informed it will require a considerable amount of money and requires lot of research work and calculations as well. However, if you go for mutual funds, you get to purchase mutual funds as low as Rs. 500 a month.

Allows automatic reinvestment

Entirely depending on the performance and the gains of the mutual funds, you are offered dividend payouts. With the help of mutual funds investments, you have the option of reinvesting your dividends and capital gains. These reinvested gains accrue, eventually adding up value to your total investment amount. You don’t need to pay anything for the processing of the reinvestment of dividends or capital gains. If you are not aiming for a regular income source from the investment, it would be a wise decision to reinvest the profits paid to you by the mutual funds. This helps you to be benefitted from compounding.

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Combat inflation

With mutual funds, you are being empowered to generate inflation-adjusted returns; above all, you don’t need to bother spending extra time and money on it. We all believe in keeping our savings in the bank to grow not knowing that the inflation is reducing its value.

Let us understand this with the help of an example – let us assume you are having Rs. 100 in your bank as savings and you can easily purchase 15 bottles of water. The interest offered by your bank is 5% per annum, so going by this; you will be having Rs. 105 in your bank account. However, in the same year, the inflation rose by 10%. Now, the cost for one bottle of water is Rs. 11. By the year end, you won’t be able to purchase 15 bottles with Rs. 105 anymore.

Transparency

Rest assured there are no hidden charges when you make mutual funds investment. You have the access to every single detail related to the fund’s assets, performance, and holdings. This allows transparency in the functioning of the mutual funds, which encourages you to make smart and informed decisions related to the investment.

Tax advantages

As an investor, if you are having investments for a time period of 12 months or more, you have the possibility of qualifying for the capital gains and will be taxed accordingly as well. These investments also have the advantage of indexation.

Choices galore

You have the option of making a choice between high, medium, and low-risk funds and you have the provision of making a choice as per your need for return as well. Now, this means you have the option of choosing between a fund where the earnings will come over a short period or the one where the earnings will come over a longer period to make sure that the returns get enchained in time for a premeditated expense.

Safe option

There is less risk involved when it comes to mutual funds. If you have plans of investing in one industry and unfortunately that industry fails, you’d lose out a lot of your hard-earned money. But with mutual funds the chances of risk are quite less as the investments gets spread over varied avenues such as bonds and stocks. This ensures that even if one manages to generate a loss, the other ones are there to take control of the amount you lose.

So, if you are looking to achieve your financial goals, then investing in mutual funds is a good alternative.

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1 comments On 11 Benefits You Need To Know While Investing In Mutual Funds

  • I’m missing something with this post. Your initial thoughts are sound enough, but unfortunately it’s dangerous to base things on what
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