InvestorQ : What are the advantages of investing in mutual funds?
Karim Sahu made post

What are the advantages of investing in mutual funds?

Swapnil Sarang answered.
4 years ago

Not only have mutual funds performed well for their investors, the investment avenue is gaining popularity with every passing day. Here are a few reasons that can be credited to mutual funds’ rising popularity:

Expert guidance – Your funds are invested by a professional manager who studies financial markets, analyses trends and understands the potential of companies in different sectors. With all this, you can be assured that your money is being invested thoughtfully, to maximise returns. Returns and risk analysis – When you invest in a single security, your profit depends on how the company fares. However, as mutual funds invest in a group of companies, the performance gets averaged and the risk gets divided. Even if one of them does not perform well, the performance of other companies will make up for it. Additionally, as mutual funds invest a large pool of resources together, even the returns they generate are significantly higher than individual investments. Availability of money – If you have invested in an open-ended mutual scheme, your money continues to earn you returns and is still available for use when you need it. This means that you can withdraw your money any time you want to. In contrast, it you have invested in a close-ended scheme, you can sell off the units, at current market rates, on the stock exchange where they have been listed.

Affordability -This is one of the most important reason that has led to mutual funds becoming one of the most popular means of investing. Mutual funds are affordable financial investment tools as you can invest in them and create wealth even if you have relatively smaller amounts of money to begin with. Transparency – When you invest in a mutual fund, as an investor, you have the right to know every detail of where and how your money is being invested You can also track the performance of the fund on a periodic basis. Tax benefits – There are some mutual fund schemes whose returns, subject to a mandatory lock-in period, are tax free. So, you can invest and create wealth without needing to pay a tax on that income. However, since this may not be the case for all schemes, it is important to understand the tax benefits of a fund before you invest in it. Regulated by SEBI – All mutual funds are regulated by the market regulator - Securities and Exchange Board of India (SEBI). They function in accordance with the provisions and regulations that protect the interests of investors and prohibit fraudulent and unfair practices.