Mutual Funds
A mutual fund is a financial institution sells shares to investors, and then invests the proceeds in securities like stocks, bonds, money market instruments, and other assets. The value of the mutual fund depends on the performance of the securities in which it invests. Mutual Funds are managed by professional fund managers who invest the investor money in various securities with the aim of generating good returns.
Benefits of Mutual Funds
Professionally Managed Funds
Mutual Funds are managed by experienced Fund Managers, who time the market and allocate funds in varies securities, based on their in-depth knowledge of market movements. Most investors in India lack financial knowledge. Hence they cannot invest in direct equity as it requires expertise.
Diversification
Mutual Funds has their own theme into which they invest. You can have stocks for each possible category in you invest in 2-3 mutual funds. Since your money is diversified hence your risk is also minimize.
Tax Benefits
You also get tax benefits of investing in Mutual Funds like Equity Linked Savings Scheme ELSS investments qualify for annual income deductions of up to INR 150,000 under Section 80C of the IT Act, 1961, which directly results in tax savings of up to INR 46,800 for taxpayers in the 30% tax slab.
Liquidity
Mutual Fund Investments are generally liquid except ELSS, Closed Ended Mutual Fund etc. Nevertheless; you can buy and sell Mutual Fund units at the prevailing Net Asset Value (NAV) of the day. Due to high liquidity MF are even preferred for short term investment.
Systematic Investment or Lumpsum Investment
Another advantage of Mutual Funds in India is that you can choose your preferred investment method. You can invest a lump sum amount in a fund or start investing via Systematic Investment Plans. With sip you can invest a sum as low as INR 500 per instalment at regular intervals – weekly, monthly, quarterly, etc.
Cost-Efficient
Mutual Funds are cost-efficient, especially if you choose buying Mutual Funds without broker. You need not to pay entry load which increase your initial investment value. This way, you can grow your corpus significantly while having to pay common expenses ratios, which differ from one fund house to another.
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