Today, people have a plethora of options to invest their hard-earned money for good returns, including bonds, money market securities, shares, etc. and, each investment option comes with its own set of benefits and challenges. Many investors prefer to invest in mutual funds over others to achieve their financial goals.
Investors pool their money through mutual funds for a diversified selection of securities, handled by professional fund managers. It gives an array of innovative products like exchange-traded funds, fund of funds, sectoral funds, fixed maturity plans, etc. This financial instrument offers convenience to its investors along with below-mentioned investment benefits:
1-Risk reduction via diversification
Mutual Funds allow an investor to diversify across securities. Since prices of securities move independent of each other, owning a wide set of securities via a mutual fund lowers investment risk.
Mutual fund proves as an ideal investment option to place your savings for a long-term inflation-adjusted growth and the buying power of your money does not plummet over the years.
Withdrawal request in equity and debt funds, if received before 3 pm, gets processed the very same day, with money credited to your account, generally in about T+3 or T+4 days. Selling a thinly traded stock is difficult, but an investor can exit an MF even if the fund has the same scrip.
4-Expert fund managers
Professional fund managers with better access to research material & companies manage funds. The fund manager’s objective is to generate returns exceeding the benchmark (typically an index like the CNX Nifty).
Supported by a dedicated research team, investors are offered with the services of an experienced fund managers who manage the financial decisions based on the performance to meet the objectives of the mutual fund plan. They have real-time access to crucial market information and are able to execute trades on the most cost-effective scale.
MFs are governed by Securities & Exchange Board of India (SEBI). They are legally bound to disclose financial statements and fund performance details. You can check the latest fund related info, portfolio and return chart in the monthly disclosure document, known as factsheet.
An individual investor will incur cost in accessing information and conducting her own research before making the investment decision. A mutual fund spreads its cost over the large volume of transactions thus lowering the cost for the individual investor.
Low investment cost is the biggest advantage for any investor because direct investment in capital market costs really expensive. Mutual funds are relatively affordable. You can start with as low as Rs. 500 and receive the benefits of long-term equity benefits.
7-Other Check Points
Prior to investing in Mutual Funds, you can review the risk factors and scheme related details from Scheme Information Document (SID). Plus, the fund manager’s background and AMC’s governance structure can be traced from Statement of Additional Information (SAI). AMCs are also required to disclose half-yearly financial results on their website.
An investor with a small sum to invest will not be able to diversify adequately. She can still enjoy the benefits of low risk via diversification in a mutual fund.
Growth or Dividend
MFs come with two options – Dividend and Growth. Long-term investors can opt for growth option, which, as the name suggests, captures the growth in value of the NAV. While dividend option offers periodical gains, either in form of cash or as additional units.
Annual investment up to Rs. 150,000 in ELSS schemes is eligible for deduction from annual income under section 80 C of the Income Tax Act.