Investing in Mutual Funds
Mutual Funds offer several advantages to investors :
Affordable
Almost everyone can buy mutual funds. Mutual Funds generally provide an opportunity to invest with less funds as compared to other avenues in the capital market. Even the ancillary fee which one has to pay in the form of brokerage, custodian etc is lower than other options and is directly linked to the performance of the scheme.
Professional Management
For an average investor, it may be quite difficult to decide what to buy, when to buy, how much buy and when to sell. Mutual funds have skilled professionals who have years of experience to manage your money. The fund manager takes these decisions after doing adequate research on the economy, industries and companies, before buying stocks or bonds. They use intensive research techniques to analyze each investment option for the potential of returns.
Diversification
Investments are less risky as it is spread across a wide cross-section of industries and sectors. Diversification reduces the risk because all stocks generally don’t move in the same direction at the same time. A mutual fund is able to diversify more easily than an average investor across several companies.
Liquidity
You can afford to withdraw your money from a mutual fund on immediate basis when compared with
other forms of savings like the public provident fund or National Savings Scheme. You can withdraw or redeem money at the Net Asset Value related prices in the open-end schemes. In closed-end schemes, the units can be transacted at the prevailing market price on a stock exchange.
Tax Benefits
Mutual funds have historically been more efficient from the tax point of view. A debt fund pays a dividend distribution tax of 12.5 per cent before distributing dividend to an individual investor or an HUG, whereas it is 20 per cent for all other entities. There is no dividend tax on dividends from an
equity fund for individual investors.
Potential of returns
Mutual funds generally offer better returns than any other option over a given period of time. Though they are affected by the interest rate risk in general, the returns generated are more.
Well regulated
The Mutual Fund industry is very well regulated. All investments have to be accounted for. SEBI acts as a true watchdog in this case and can impose penalties on the AMCs at fault. The regulations are also designed to protect the investors’ interests are also implemented effectively.
Transparency
