Advantages of Mutual Funds

Mutual funds offer a hassle-free investment approach by pooling funds from numerous investors into a professionally managed, diversified portfolio. Key benefits include diversification, expert fund management, rupee cost averaging, tax efficiency, liquidity, affordability, transparency, and accessibility, making them ideal for both new and seasoned investors.
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Benefits of Investing in Mutual Funds
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4 mins
26-March-2025

There are several advantages of mutual funds investing, like offering diversified investment, professional management, and the potential for higher returns. The appeal of mutual funds has strengthened recently, presenting individuals with a lot of advantages that align with their diverse financial goals. Let’s understand the compelling benefits of investing in mutual funds, exploring the opportunities they present for wealth creation, risk mitigation, and the overall enhancement of one's financial portfolio. From the potential for substantial returns to the expert management of diversified assets, let us understand the distinct advantages that mutual funds bring to the forefront of modern investing in 2024.

What are advantages of investing in mutual funds?

Here are some advantages of investing in mutual funds:

  1. Professional Management: Mutual funds are managed by professional asset managers who have years of experience in the financial markets. They have the expertise to make informed investment decisions and help investors earn a profit.
  2. Diversification: Mutual funds invest in a variety of securities, which helps reduce or mitigate the risk. This diversification helps protect the investor's portfolio from market volatility.
  3. Liquidity: Mutual funds are highly liquid investments, which means that investors can easily buy and sell their units at any time.
  4. Tax Benefits: Mutual funds offer tax benefits to investors. For example, in general long-term capital gains from mutual funds are taxed at a lower rate than short-term capital gains. Also, by investing in ELSS mutual funds investors can save tax on income of up to Rs. 1.5 lakh (under 80C), but these funds have a lock-in period of 3 years.
  5. Affordable: Mutual funds are affordable investments that allow investors to start with small amounts of money. You can start investing in 1000+ mutual fund schemes with as low as Rs. 100 on the Bajaj Finserv platform. Explore funds that align with your financial goals and budget. Click here to get started.
  6. Safe and Transparent: Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), which ensures that they operate in a safe and transparent manner.
  7. Systematic or one-time investment: Whether you prefer systematic or one-time investments, mutual fund planning can be tailored to suit your budget and preferences. For instance, initiating a monthly or quarterly SIP (Systematic Investment Plan) in an equity fund is suitable for investors with limited funds, while those with surplus amounts may opt for a lump sum investment in debt funds.
  8. Automated payments: Simplify your investment process with automated payments to avoid delays or postponements. By setting up paperless automation through your fund house or agent, submitting a SIP mandate allows your bank account to automatically deduct SIP amounts as scheduled. Regular email and SMS notifications ensure you remain on track with your mutual fund investments.
  9. Quick and hassle-free process: Initiating and diversifying your mutual fund portfolio can be a quick and straightforward process. You can start with a single mutual fund and gradually expand across different funds that align with your investment objectives and risk tolerance. Selecting from curated funds that match your criteria makes the decision-making process easier.
  10. Tracking mutual fund performance becomes hassle-free as fund managers, assisted by their teams, determine when, where, and how to invest in securities based on investment objectives. Their primary responsibility is to outperform benchmark indices and consistently deliver maximum returns to investors.
  11. Suits your financial goals: Mutual funds in India offer a wide range of options to accommodate investors from all income brackets and lifestyles. Regardless of your financial situation, it's crucial to cultivate a habit of setting aside funds for investments. Finding a mutual fund that aligns with your income, investment goals, time horizon, and risk appetite is readily achievable.

Top performing funds

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Frequently asked questions

Why invest in mutual funds?

Investing in mutual funds offers diversification, professional management, and access to a variety of asset classes. It's suitable for those seeking convenience and expertise in managing investments with potential for long-term growth.

Can you lose money in mutual funds?

Yes, mutual funds are subject to market fluctuations, so there's a risk of losing money, especially in volatile markets or if investments perform poorly. However, diversification and a long-term investment approach can mitigate risks.

What are the factors you need to consider while choosing the best mutual fund scheme?

The factors that you need to consider while choosing the best mutual fund scheme include active vs passive management, role in your portfolio, performance, expense ratios, taxes, and manager's tenure.

Should beginners invest in mutual funds?

Mutual funds can be a good option for beginners due to their diversification benefits, professional management, and various risk levels catering to different investors. But it is advised to do proper research before investing your hard earned money in any investment instrument.

Are mutual funds good or bad?

Mutual funds are generally beneficial for investors looking to diversify and access professional management. They offer opportunities for growth and income, though risks exist. Choosing funds aligned with financial goals and risk tolerance is crucial for maximizing benefits.

Why are mutual funds better than stocks?

Mutual funds provide diversification across various assets, reducing risk compared to investing solely in stocks. They also offer professional management, making them suitable for investors with less time or expertise.

Can I cash out mutual funds?

Yes, mutual funds offer liquidity, and you can sell your units to cash out. However, it's subject to market conditions and the fund's rules.

Can you lose money in mutual funds?

Yes, mutual funds carry market risk, and the value of your investment can fluctuate based on market conditions. There is a potential for both gains and losses.

What is the best age to invest in mutual funds?

The best age to start investing in mutual funds is early adulthood, ideally in the 20s or 30s. This allows for long-term growth and compounding benefits. However, investing at any age can be beneficial, depending on individual financial goals and risk tolerance.

Is mutual fund safe for 1 year?

Mutual funds aren't typically recommended for short-term investments like one year due to market volatility. However, certain types, like liquid funds or short-term debt funds, can be relatively safer than equity funds for short durations, depending on market conditions.

What are the Tax Benefits of mutual funds?

Mutual funds offer tax benefits such as tax-saving schemes (ELSS) eligible for deductions under Section 80C. Capital gains on equity funds held over one year are tax-free up to a limit. Debt funds enjoy indexation benefits, lowering tax liability on long-term gains.

What are the liquidity benefits of mutual funds?

Mutual funds provide liquidity as investors can redeem units at prevailing NAVs. Open-end funds offer daily liquidity, while close-end funds trade on exchanges, ensuring flexibility. Liquid funds allow quick withdrawals, making them suitable for short-term cash management needs.

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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.


Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.