Advantages of Mutual Funds: Why They're a Smart Investment Choice

This article delves into the numerous advantages of mutual funds, from diversification to professional management. Explore how mutual funds can benefit your investment strategy.
4 mins
30 October 2023

What Are Mutual Funds?

A mutual fund is a type of investment vehicle that pools money from multiple investors to purchase securities such as stocks, bonds, and other assets. The funds are managed by a professional asset manager who invest the money in different securities to help the investors earn a profit.

Some Advantages of 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 funds 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.

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.

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