5 Factors That Make Mutual Funds a Great Investment Tool

Mutual funds have emerged as attractive investment options for achieving a wide variety of financial goals. The decision to invest in which type of scheme depends on how much risk you can take and what is the time horizon set by you for achieving them. These goals could be arranging funds for your child’s education or marriage or saving for a vacation or buying a home or a car or tax savings or for ensuring regular cash flows.

Benefits of Investing in Mutual Funds

What makes mutual funds a preferred option? Let us find out.

  • Diversified Portfolio – Investing in mutual funds allows you to have a diversified exposure- in different types of instruments as well as stocks of different companies.  You can even find mutual funds that invest in commodity exchange-traded funds allowing you to take exposure in precious metals like gold. By investing a small amount in a mutual fund, you get a chance to have a wider exposure which not only diversifies the risk but also offers you a chance to earn better. You can choose to invest in a pure debt or equity fund or opt for a hybrid fund that invests in both.
  • No Research Required – Mutual funds are managed by professionals who conduct thorough research before investing in stocks, bonds, or any other investment product. So, when you decided to invest in mutual funds, you do not need to spend time researching and identifying individual stocks to invest in. You also do not need to track the movement of various stocks and instead rely on the experience of the professionals managing the scheme.
  • High Liquidity – The open-ended mutual fund units can be bought and sold at any time. The redemption value is based on the mutual fund’s NAV or Net Asset Value.  On the other hand, close-ended funds that are listed on a stock exchange can be freely bought and sold via the exchange. However, some funds that offer special tax benefits may come with a lock-in period of three years.
  • Invest Lumpsum Amount or via SIP – you can invest in mutual funds in two ways- either a lumpsum amount or a fixed amount on a regular basis through a Systematic Investment Plan or SIP route. The choice depends on the availability of funds with you. The SIP option comes with the benefit of rupee cost averaging wherein the cost of acquiring mutual fund units varies from time to time based on the market trends. You can invest via SIP with as low as Rs 500 or 1000 depending on the mutual fund company’s rules.
  • Cost-Efficient – Investment in mutual funds is simple and cost-efficient. Direct purchase of stocks involves brokerage and other charges which are not there when you invest in mutual funds. This is because mutual funds buy in bulk which ensures low brokerage rates for them.

Mutual funds in India are regulated by rules set by the Securities and Exchange Board of India (SEBI), the securities regulatory authority. The investors can get detailed information about their schemes and their investment profile from the mutual fund company. They can view offer documents and annual reports.

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