Benefits of Mutual Fund Investment – 11 reasons to Invest in Mutual Fund in 2024Last Updated Date: Jan 02, 2024
Before starting to invest in mutual funds, make sure you are well aware of the benefits of mutual fund investment as well as the drawbacks.
Mutual Funds are one of the best investment options for salaried people and are their most preferred way for investment.
The most popular reasons to invest in a mutual fund are professional management, diversification, affordability, and liquidity.
The two major concerns you will have while investing your money will be if your money will grow or not and what if you suffer loss? Let us simplify this for you.
What are Mutual Funds?
A mutual fund is a company that collects money from various investors and then invest the money in different securities, for instance, stocks and bonds.
When investors buy the shares in mutual funds, they have part ownership in the income the fund generates.
But investing in a mutual fund does not mean just investing in stocks or bonds.
If, as an investor, you do not wish to take huge risks, you can also invest in debt instruments, where the risk factor is comparatively much less.
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Benefits of Mutual Funds Investment
Without beating much around the bush, let’s get straight to what actually matters. The benefits of mutual fund investment are many.
But thoroughly understanding them is important. Let’s make these concepts crystal clear before starting to invest in mutual funds.
- Easy to Understand
- The Variety
- Expert Management
- The flexibility to invest small amounts
- Multiple Schemes
- High Return on Investment
- Well Regulated
Easy to Understand – Benefits of Mutual Fund Investment
Mutual Funds are very easy to understand. To start investing in a mutual fund you don’t need any kind of special skills or knowledge of finances or economics.
You can start investing and learn with experience. There is also an option to take the help of an expert if you feel that doing the whole investment and managing it is not your cup of tea.
Liquidity – Pros of Mutual Fund Investment
The most important and accessible feature of mutual funds is the liquidity or in simple terms, flexibility.
What this means is that unlike fixed deposits, mutual funds will allow you to redeem your unit at any time. Although, there is a catch that one should consider and be aware of.
Mutual funds do have easy withdrawal but there are factors such as pre-exit penalty and exit load that you should look into. Not all Mutual Funds have exit load and pre-exit penalty.
Diversification – Benefits of Mutual Funds
The value of an investment fund does not increase or decrease finally at once. An investor always has his investments in not one but many different stocks.
So, eventually, when there is a rise in one of the investments, there is a chance that, there may be a decline in the other investment.
Now, there may be confusion about how this is a benefit. This decreases the chances of your portfolio becoming volatile.
Diversification also reduces the risk factor for the investor immensely, both in building a portfolio and investment risk.
Since mutual funds consist of many securities, investor’s interests are preserved if there is any downfall in the other securities that an investor has purchased.
The Variety – Perks or Mutual Fund Investment
Variety is preferred in literally everything. It gives you a better perspective of the best option for you. The same applies to a mutual fund.
As your portfolio starts to grow, diversification is a must. You will naturally want to diversify into multiple mutual fund categories.
You can start by diversifying into asset classes that include stocks, bonds, and cash, there are also many subcategories you can look into. Sector Funds or Precious Metals funds are some of them.
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Expert Management – Upside of Mutual Fund Investment
A neophyte who has just begun to invest may not necessarily have a lot of knowledge or experience when it comes to how, when, and where to invest.
An expert may not face this problem. An expert will pool the money from investors and then invests it in different securities.
Stocks, bonds, or short-term bonds are called securities. Investing the money in different securities increases the chance of investors to incur a profit.
If you have an expert taking care of your mutual funds, all you have to do is invest and then chill.
Literally, all you have to have to do is invest, be rest assured that everything else will be handled and managed efficiently by the expert.
They will take care of the timely exit and entry that is required and will also handle all the challenges that come up.
Flexibility to invest Small Amounts
The flexibility mutual funds have to offer is one of the benefits. If you are new to mutual funds or simply do not wish to invest huge capital, a mutual fund also allows you to invest small amounts.
You can invest according to the increasing or decreasing liquid assets. This is called investment according to the cash flow position.
SIP (Systematic Investment Plan) is the best option to opt for if you earn monthly salaries. SIP works by investing a fixed amount as per your budget and choice.
That’s right, you can select the amount you want to invest. The investment can either be monthly or quarterly as per your convenience.
Accessibility – Benefits of Mutual Fund Investment
You have probably heard this a lot of times, but it is worth repeating. Mutual Funds are very easy to buy.
There are no restrictions when it comes to buying mutual funds from anywhere. You can be in any corner of the world and start investing in mutual funds.
Asset management companies offer the funds and distribute them through various channels like Brokerage Firms, Registrars, AMC’s themselves, online mutual fund platforms for investment, agents, and banks.
Multiple Schemes – Advantages of Mutual Funds
One of the best benefits that mutual funds have to offer is that the minimum investment can be as low as you want.
Even just INR 500 will do! As we say that, there’s no limit on the maximum amount too. The maximum amount can be as much as you want it to be.
High Return on Investment – Perks of Mutual Fund
This is the main aim of every investor that gets him/her into mutual funds. Every single investor aims to achieve a higher return on investment (ROI).
This possible by investing in financial instruments to beat inflation and increase their growth in the long-term.
Mutual Funds have greater odds of providing high returns over time since it is possible to invest in a diverse range of sectors and industries.
Security – Pros of Mutual Fund Investment
The Securities and Exchange Board of India (SEBI) has introduced various guidelines to make Mutual Funds safer and more transparent for investors.
The SEBI guidelines have labeled all the products of the mutual fund. What this means is that all the mutual funds will have a color-coding.
This makes it crystal clear for the investor about the risk factor in his investment. This makes the entire investment process very transparent and safe for the investor.
The color-coding indicates the high or low risk, blue indicates low risk, yellow indicates medium risk and brown indicates a high risk.
This will make it very clear for the investor about the risk of his investment.
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Well Regulated – Benefits of Mutual Fund Investment
The Mutual Funds are regulated and managed by the Securities and Exchange Board of India (SEBI).
This basically means that Mutual Funds have to abide by all the rules and regulations that are instructed by the SEBI.
This helps to protect the interests of the investors by making it a more secure platform.
The SEBI makes it mandatory for all the mutual funds to open their portfolios every month to maintain transparency.
Conclusion – Benefits of Mutual Fund Investment
Mutual Funds are a great way to invest. It is easy to understand, safe, cost-efficient, provides a hassle-free process, and is tax-efficient.
Although, all investors must estimate their investment returns before investing. This will aid your financial goals.
Other than a good profit, Mutual Fund investment also secures your financial life. The money we invest here will increase and lead to a better and financially stable future.
Take all your goals, plans into account and invest in a Mutual Fund according to your risk-taking capacity.
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