Benefits of Mutual Funds

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Find out the many advantages of investing in Mutual Funds

Key Takeaways

• Mutual Fund managers pool investments from various investors and professionally manage portfolios.
• You can choose from multiple open and close-ended Mutual Funds Schemes based on your risk profile, investment horizons and goals.
• Investing in Mutual Funds can help reduce your tax liabilities.
• You can invest lump sums or in instalments via systematic investment Plans.
• Most Mutual Funds are liquid, cost-efficient, and permit risk-specific investments.

Considering the current economic climate and the ever-growing inflation rates, you must ensure you make regular, disciplined investments earning inflation-adjusted returns. Mutual Fund investments have continued to remain popular among investors thanks to professional management, low costs, and pocket-friendly investment amounts. Essentially, an Asset Management Company (AMC) or a Fund House gathers money from investors and invest the sum across several asset classes. Let us briefly understand the benefits of investing in Mutual Funds.

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Advantages of Investing in Mutual Funds

Managed By Professionals

The primary benefit of Mutual Fund investments is that they are managed by experienced Fund Managers, who time the market and allocate funds in debt, equities, and other money market instruments, based on their in-depth knowledge of market movements.

Diversification and risk mitigation

Another advantage of Mutual Fund investments is that you can access several asset classes in a single scheme. This feature gives you access to a basket of high-returns-generating equity securities, low-risk fixed-income debt instruments and balanced funds. This permutation and combination of assets lower your overall risk and assists with portfolio diversification.

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 generally demand a longer investment horizon. Nevertheless, you can buy and sell Mutual Fund units at the prevailing Net Asset Value (NAV) of the day. For instance, Debt Funds like Liquid Funds have a shorter redemption time than most funds. However, ELSS Funds come with a mandatory 3-year lock-in period and are not as liquifiable.

Choice of 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 100 per instalment at regular intervals – weekly, monthly, quarterly, etc.

Cost-Efficient

Mutual Funds are largely considered cost-efficient, especially if you choose long-term schemes. This way, you can grow your corpus significantly while having to pay a one-time fund management fee, exit load, and other common expenses ratios, which differ from one fund house to another.

Risk-specific investments

In India, over 44 Fund Houses altogether offer more than 2500 Mutual Fund Schemes. As such, you can choose Mutual Fund schemes per your risk profile and investment goals. For instance, conservative investors debt funds, while those with aggressive risk appetites can invest in Equity schemes. Likewise, moderate-risk investors looking to create a balanced portfolio can choose Hybrid Funds.

Conclusion

With so many benefits of Mutual Funds, they make for excellent investment instruments. Ensure you select Mutual Fund schemes that align with your goals and investment horizons. Let fund managers work their magic while you enjoy inflation-adjusted returns, tax and portfolio diversification benefits.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.