Why to Invest in Mutual funds

In the last 20 years, the mutual fund industry has grown in leaps and bounds. But is that reason enough to invest? So why to invest in mutual funds?

While we all have heard and read of mutual Funds, we perhaps would have not given an in-depth thought to what really are the benefits of “Investing in Mutual Funds”.

mutual funds

Top 10 Reasons to Invest in Mutual Funds

So, here is snapshot of what they are and some compelling reasons as to why to invest in mutual funds

1) Professional Management

Mutual Funds are managed by Asset Management companies which have professional expertise in the form of fund managers. They have access to important market information which helps them make changes to the portfolio. They do a lot of research, buy/sell securities and also monitor the fund on a regular basis.

2) Lower Risk and Diversification

To lower the risk, diversification of the portfolio is essential. For an individual, this means a lot of investment in various securities. However, buying Mutual Funds gives exposure to a portfolio of securities which are well diversified by fund managers. Thus, creating a perfect combination of lower risk and good returns.

3) Liquidity

Converting securities to cash whenever needed. Yes that’s what we call liquidity. And this is possible with mutual funds. In case of open ended schemes, one can sell the mutual fund at the NAV or Net Asset Value and money would be in your account within a matter of days. Closed-ended funds are exchange traded and can be sold at the available market price.

4) Choice of Funds Available

Large number of mutual funds with different types and styles are available. Thus, one can choose different kinds of mutual funds to make a well diversified portfolio at a low cost. Be it for achieving financial goals like Marriage, Children’s education, a vacation or even a basic requirement like tax planning, mutual funds can go a long way in financial planning.

5) Tax Benefits

ELSS or Equity Linked Saving Scheme funds or “tax saving funds” as they are generally called, are eligible for deduction under Section 80C upto a maximum of 1 lakh.

6) SIP Facility

Many mutual funds have the added advantage of SIP or Systematic Investment Plan attached to it making it possible to take advantage of the Rupee Cost Averaging.

7) Minimum Initial Investment

One can start investing in a mutual fund for as less as `500. Thus, one can have exposure to many equities at a small amount. Thus, the small investors can benefit from this too.

8 ) Greater Transparency

Information on the securities held in mutual funds is readily available on the fund’s website and is updated on a regular basis. Thus, there is transparency and investors can take a more informed decision on whether they want to put their money in a particular fund. Also, regular updates on value of the fund are sent to the investors by the fund company.

9) Audited Track Records

As per the SEBI regulations, mutual funds are required to maintain track records pertaining to mutual fund’s performance. These also need to be audited for accuracy so that there is transparency on the performance.

10) Greater Convenience/ Ease of handling

Information on along with application forms is available on company websites. There are a number of intermediaries like banks and financial institutions which help invest in Mutual funds. Also, the paperwork associated is limited and hence, owning those units of mutual funds is “literally” hassle free.