Mutual funds are wealth-creating vehicles that are increasingly gaining the attention of new investors every year. Its higher yield potential and well-regulated structure offer immense opportunities for small and medium investors alike to grow their money.
If you are looking to invest in mutual funds online, the article lists the top eight mutual fund benefits.
Mutual funds allow you to lower the risk of investing in a single sector or a particular stock by giving you a broader exposure. For example, you can buy both industrial and retail stocks and also invest in bonds, gold or other commodities.
- Professional management
When you invest in mutual funds through a fund house, your fund manager makes investment decisions for you based on your financial goals, risk appetite and investment profile. Through their extensive experience and qualification, they can help build the right portfolio for you.
- High liquidity
In case of open-ended funds, you can redeem your holdings based on the Net Asset Value (NAV) at the time of withdrawal and receive your money in three to five business days. Debt and liquid funds credit your redemption request to your account in T+1 (trade day + one day) days.
- Ease of investment
A mutual fund investment allows you to begin investing with small investment amounts making it an ideal investment avenue for people belonging to different income brackets. For example, with a SIP you can start as low as Rs.500.
- Tax efficiency
Mutual funds save on taxes with a deduction up to Rs.1.5 lakh under Section 80C of the Income Tax Act. Moreover, tax-saving mutual funds have a lock-in period of three years as compared to other investment instruments such as ULIP and PPF, which have a lock-in period of five years.
- Economies of scale
Fund houses save considerably on transaction costs since they invest in assets collectively. They pass these savings to the investors. Furthermore, since asset management service fees also get divided between multiple investors of the fund, it can cost you less.
Various industry publications and rating agencies track the performances of mutual fund schemes. You can stay updated and informed about the latest news in the market, view factsheets, annual reports and more to make informed decisions. Moreover, since SEBI mandates strict guidelines, all mutual fund houses are bound to abide by them.
- Rupee cost averaging
When you invest via SIP, you automatically buy more units, when the NAV is lower and buy fewer units when the NAV is higher. This is because you enter the market at different points and so your average purchase price reduces. You can effectively benefit from market lows and highs through rupee cost averaging.
Now that you know the benefits of mutual funds, you can start investing and learning how to invest in SIP. A SIP investment allows you to invest a fixed amount weekly, monthly, quarterly or semi-annually as per your convenience and financial budget.