Advantages of Mutual Funds

Some of the advantages of mutual funds include advanced portfolio management, dividend reinvestment, risk reduction, and many more. Explore all in this blog.
Advantages of Mutual Funds
4 mins

Investors are constantly seeking for investment avenues that offer both growth and security. As we step into 2024, the appeal of mutual funds has strengthened, presenting individuals with a lot of advantages of mutual funds 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.
  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.

Frequently asked questions

Why invest in mutual funds?

Investing in mutual funds offers several benefits such as professional management, diversification, liquidity, low cost, tax benefits, affordability, safety, and transparency.

Can you lose money in mutual funds?

Yes, mutual funds are subject to market risks and hence there could be a possible loss of principal.

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.

What is good approach for you to enjoy highest returns from mutual funds?

A good approach for enjoying high returns from mutual funds is by investing for the long term and choosing a diversified portfolio.

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 can be good for diversification and professional management, but like any investment, they come with risks. It depends on individual financial goals and risk tolerance.

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 invest Rs. 1,000 in a mutual fund?

Yes, many mutual funds allow investments starting from Rs. 1,000, making it accessible for investors with smaller budgets.

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.

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