There are many benefits of investing in mutual funds for everyone, but mutual funds are a particularly good investment option for the busy professional. For starters, mutual funds can save a lot of time — instead of picking and choosing individual stocks, and then tracking them, professional workers can simply pick a mutual fund, and then let professionals manage their money for them. Still, a lot of people look at mutual fund investment with fear and confusion. Out of the various benefits, we will list a few here to try and clear up confusion for those individuals out there.
1. Risk Diversification
Not a lot of people know that there are three types of risk: company risk, sector risk and market risk. While market risk is highly unpredictable, an expert can mitigate risks in other two categories. To reduce risk, mutual fund managers make investments in diverse stocks across sectors and asset classes.
2. Fund Management Professional
A great feature of mutual funds are that your investments are always in expert hands. The fund managers Asset Management Companies (AMCs) appoint are professionals who understand the curves and tangents of every trend in the share market. She or he makes the important decisions about your investment at all times. This is particularly beneficial because we have an expert look out for your interests rather than acting on our own half-informed impulses.
3. Variety of Products
Mutual fund is not a single product, but they come in a great variety. Mutual funds are of so many kinds that SEBI recently issued a circular stating guidelines for its classification. There is a mutual fund for everyone. Whatever your financial bandwidth, there is a mutual fund suitable for you. Systematic investment plan (SIP) is a great tool that helps investors of all capacities get started in small amounts. Also, you can calculate your monthly or yearly returns by using SIP Calculator.
4. Ease of Buying and Selling
The ease of buying and selling units of mutual funds, also known as liquidity is a factor that makes mutual funds appealing to investors. Unlike fixed deposits and PPF schemes, most mutual funds are easily redeemable. If you invest on latest online platforms, this means that your money is always a few clicks away.
With many convenient features such as SIP, easy redemption and automatic transfers, mutual funds are all about convenience. These days with the presence of tech investment platforms, there is no paperwork required to invest in mutual funds online, and all is done from the comfort of your phone. The transactions are online and effortless.
6. Financial Discipline
Financial discipline is an admirable trait, which is hard to acquire. A bonus feature of mutual fund investment is that you learn a desirable level of discipline in investing. The systematic investment plan (SIP) is a way you can set up automated transactions from your bank account to the mutual fund of your choice.
7. Tax Benefits
There is a variety of mutual funds that helps you save tax. Tax saving mutual funds like ELSS funds are popular among salaried investors who want to save money. Returns from certain funds like ELSS is exempt from taxation. They are like regular PPF, albeit with higher returns.
Sometimes a complaint with investors is about the hidden charges that were levied on them upon entry and exit into mutual funds. To not be taken by surprise by such charges, it is important that an investor understand all the expenses in regards to a mutual fund investment. First of all, expense ratio. Like all operations, mutual fund houses also have expenses to take care of. For example, the salary of the fund management team, stationery and supplies. To meet these expenses, asset management companies charge a small annual fee on the investors. Usually this ranges up to 1.5%. It is deducted from your investment returns and is called the expense ratio.
In addition to these features, mutual funds are under the watch of statutory bodies like SEBI and Association of Mutual Funds of India (AFMI). This makes investing in mutual funds safe and less risky than it is usually perceived to be.