Investing in Mutual Funds come with a lot of risk & uncertainty of returns, but in this article, we will discuss the benefits of investing in Mutual Funds.
1) Professional Approach to Investing
I feel the biggest benefit of Investing in Mutual Funds is that you get a professional & expert approach towards investing. Whenever you invest in Mutual Funds your money is managed & invested by a Experts, who have better market knowledge, then spend most of their time in Research & Analysis.
These Experts invest your money in Stocks or Securities in which they have done intensive research, fundamental & Technical Analysis, After such research, they invest your money in different securities. Doing Such kind of research & Spending a lot of time is not possible for an Individual Investor. So Investing in Mutual Funds does give you a Professional & better option for investing.
2) Risk Diversification
Risk Diversification is the reason many people invest in Mutual Funds over direct equity Stocks. Whenever you invest directly in Stocks you carry risk such as Company Bankruptcy / Management Fraud / Business Losses. All these can result in huge losses on your investments.
Whenever you are investing in Mutual Funds, the portfolio of Mutual fund is Spread of 20 – 50 Different stocks, so you get diversification in Investment which in turn reduces your risk as even if 1 or 2 Companies go down rest companies can compensate for those losses.
3) Smaller Investment Requirements
Mutual Funds Require very less Capital Requirement as Compared to direct Stocks. Anyone can Start Investing in Mutual Funds with Rs.500. As time progresses Investment Amount can be adjusted according to your needs & financial goals.
Another benefit is you can invest in expensive stocks with Small Investment in Mutual Funds. Ex. Mr W wants to Invest in MRF Shares but Cost of 1 Share of MRF is Rs.65,000 per Share and Mr X has only Rs.5000 to Invest, so what Mr X can do is that he can identify those Mutual Funds which invest in MRF & he can start investing in those Mutual Funds with the Amount he wants to Invest. Now after following this method, Mr X can get indirect investment into MRF through his Mutual Fund with the Amount he wishes to Invest.
4) Ease of Investing
Mutual Funds offer flexible modes of investing into Mutual Funds. There are various methods through which Investors can invest in Mutual funds at their ease.
Investors can invest through SIP (Systematic Investment Plan) where the fixed amount will be invested into Mutual fund every month or Lumpsum where one-time investment is made, STP (Systematic Transfer Plan) where the money is transferred from one scheme to another.
The investor can also Invest thru Offline modes such as through Distributor/Agent/ Mutual Fund Office via Cheque or DD. Online Modes such as Mutual Fund Website, Apps Such as Paytm Money, Groww, Kuvera or Stock Brokers.
No other investment product offers such wide & easy Investment methods.
5) Variety of Funds
Mutual funds offer a wide array of investment products to choose from depending upon your Financial goals & Time Available.
You can invest in Equity Schemes like Large Cap Schemes, Small Cap Schemes, Balanced Funds, Index Funds, Sector Funds etc.
You can invest in Debt Schemes like Short Term Debt Funds, Long Term Debt Funds, Liquid Funds etc.
Investment can also be done in Real Estate Funds which Invest in Real Estate Companies, Gold Funds which invest in Gold, So you can get returns of gold & Real Estate without investing into them through Mutual Funds.
Also, there are various different types of Mutual Funds to choose from. If you want to read a Detailed Article on Different Types of Mutual Funds in India – Click Here
6) Helps in Disciplined Investing
Investing in Mutual Funds helps in bringing about a disciplined approach towards investing.
Investing in Mutual Funds through SIP Regularly can bring out a lot of disciplined investing. Disciplined Investing helps not only in Creating Wealth but also Creates benefits like Cost Averaging, Better Returns, Compounding Over Long Term.
7) Better Tax Benefits
Mutual Funds Offer Better Tax Benefits over Other Investment Products like Fixed Deposits or Company Deposits.
Interest Income from Investments is Taxed at highest Slab Rate of 30%. But In Case of mutual funds Tax is to be paid only when Sale/Redemption/Switch of Mutual Funds is Done.
Gains for Mutual Funds which were held for more than 1 Year are Taxed @10% (Also with a Benefit of No Tax if the Gain Amount is Less than Rs.1,00,000).
Gains for Mutual Funds which were held for less than 1 Year are Taxed at Flat 15% which is half of Tax Rate of Other Investments.
Also, The Investments Made in ELSS (Equity Linked Savings Scheme) are eligible for Tax Benefits under Section 80C up to Rs.1,50,000 p.a.
Hope that you are able to understand the benefits of Investing in Mutual Funds, If you have any Questions/ Queries do let us know in the comments section below & Thank You very much for Reading.
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