Home  »  Market Guide  »  Benefits Of Investing In Mutual Funds

7 Benefits of Investing in Mutual Funds

Last Updated Date - Apr 08, 2023

Mutual funds have always been one of the most popular investing alternatives in India.

Its basic characteristic of allowing you to invest in a diverse portfolio made of stocks, bonds, and other assets from various sectors is one of the major reasons for its popularity.

Any fund manager allotted the task of managing a mutual fund will first pool the investments of multiple participants and then work towards investing the amount into multiple assets and creating a diversified portfolio.

A mutual fund’s investors are referred to as unit holders, and the units assigned to them according to their investment amounts serve as representations of their investments. This article will address the 7 major benefits of investing in mutual funds. Mutual Funds

An Introduction to Mutual Funds

In India, mutual funds are governed by the Securities and Exchange Board of India (SEBI), The governing body ensures that it works towards the benefit of the investors.

Also, the mutual fund firms must abide by the SEBI’s rules, which have descriptive information on investment limitations, investor disclosure of information, and other operating criteria.

There are many types of mutual funds in India such as balanced funds, debt funds, index funds, and equity funds.

Debt funds invest primarily in bonds and fixed-income instruments, index funds follow a particular market index and balanced funds engage in a mix of equity and debt.

Open a Free Demat Account & Start Trading Now!

    Fill Your Details Here

    Benefits of Mutual Fund Investing

    The simplicity of investing in a single product, expert management of assets, portfolio diversification, and other advantages are just a few of the advantages that mutual fund investors may enjoy.

    Out of the vast list of advantages, this article shares 7 of its major benefits:

    Benefit #1: Diversification

    Diversification is the key benefit of mutual funds. Most mutual funds run a lower risk of losses because the assets in which the money is invested belong to the different asset classes and even sectors, mitigating the unsystematic risks.

    The investor assumes the risk connected with the performance of the securities when they purchase individual stocks or bonds.

    The investor may sustain large losses if one of those securities performs poorly. But by investing in a mutual fund, the investor’s funds are dispersed among several securities, lowering the risk attached to any one particular security.

    This means that the mutual fund’s investments in other areas or industries may assist to balance any losses if one sector or industry is not performing well.

    Benefit #2: Professional management

    Mutual fund investors benefit from the expertise of professional managers who have the resources and knowledge to make sound investment decisions.

    Individual investors who lack the time or competence to examine particular stocks and make investment decisions on their own may find this extremely useful.

    The fund manager of every mutual fund takes special care in finding the right securities and to do so they undertake extensive market research and analysis.

    Moreover, they keep an eye on the performance of the securities owned by the fund and modify them as required to keep it on pace to achieve its objectives.

    Furthermore, when it comes to identifying and having access to investment opportunities, no investment asset can beat the returns of mutual funds.

    Benefit #3: Liquidity

    Mutual funds are liquid investments, enabling investors to buy and sell shares of the fund at any time during regular business hours.

    This makes it easier for investors to access their money when they need it, as they may sell their shares and receive their proceeds within a few days.

    This is especially advantageous for investors who might need quick access to their funds in the event of an emergency or other unforeseen circumstances.

    When compared to other investments like real estate and private equity, which are relatively difficult actively sell in the market, Mutual funds, on the other hand, provide you with the flexibility and convenience of access to investments.

    Additionally, some might offer features like systematic withdrawal plans that let buyers receive monthly dividends from their investments.

    For investors who are retiring or want a consistent flow of income from their investments, this can be quite advantageous.

    Benefit #4: Affordability

    In contrast to other investment alternatives like individual stocks, bonds, or real estate, mutual funds often have lower investment minimums.

    As a result, a wider spectrum of investors, including individuals who might not have a lot of money to invest, can access them.

    Even small investors in India may be able to participate in the market largely owing to some mutual funds’ low minimum investment requirements of just Rs. 500 or Rs. 1000.

    Additionally, systematic investment plans (SIPs), which can start with as little as Rs. 1000 per month, are frequently available through mutual funds for investors to make recurring contributions.

    Mutual funds give individuals the chance to engage in the financial markets and maybe accomplish their financial objectives even with a restricted budget by giving reasonable investment possibilities.

    Young investors or those who are just starting to save for the future may find this to be very helpful.

    Learn everything about Modern Stock Trading Now!

    Benefit #5: Flexibility

    The fifth on the list of benefits is flexibility. Mutual funds are a type of investment alternative that does not limit your investment options.

    There are so many types of mutual funds that you will be able to find the right fit for you to reach your financial requirements.

    For instance, based on their investment goal, mutual funds have the following categories like equities funds, debt funds, or balanced funds, among others.

    As a result, investors may pick a fund that fits their investing objectives, level of risk tolerance, and time horizon.

    Mutual funds may also provide a variety of investment alternatives, including growth plans, dividend plans, and reinvestment plans, among others allowing investors to have the freedom to select a plan that fits both their income requirements and investing objectives.

    Also, investors may be able to swap between several funds or investment alternatives through them, allowing them to modify their investment strategy over time as their requirements and goals alter.

    This can assist investors in staying on pace to meet their financial objectives and even increase profits.

    Benefit #6: Tax benefits

    Although mutual funds in India are subject to government-set tax restrictions, buying them can also provide investors with several tax advantages.

    Long-term capital gains, or profits on assets held for more than a year. They are now tax-free on equity mutual funds in India up to Rs. 1 lakh, making investing in mutual funds one of the most advantageous tax strategies.

    This implies that investors may receive returns on their investments. That is possibly tax-free, which might substantially increase their overall profits.

    Moreover, tax deductions under Section 80C of the Income Tax Act may be available for investments. Such as ELSS (Equity-Linked Savings Scheme) funds.

    By investing in ELSS funds, investors may deduct up to Rs. 1.5 lakh from their taxable income, lowering their tax obligation.

    Benefit #7: Potential for higher returns

    The possibility of higher returns wraps up the list of the top benefits of investing in mutual funds. Mutual funds pool the capital of many investors. Then use it to buy a variety of stocks, bonds, and other assets.

    Compared to investment in individual stocks, this enables investors to possibly achieve better profits.

    Also, mutual funds are readily managed by professionals, and with expertise in the field. The probability of earning high profits increases.


    In conclusion, there is no denying the fact that mutual funds have multiple benefits associated with them. However, it is ultimately up to you how you can use thor benefits to reach your financial objectives.

    Thus, whenever looking to opt for mutual funds, make sure to read all the terms and conditions of the fund. Also, do a background check on the fund manager.

    Open a Free Demat Account & Start Trading Now!

      Fill Your Details Here

      Most Read Articles


      Get 90% Discount on Brokerage Now! Open Demat Account