Whether you are a new investor or an experienced one, there comes a time when you have to choose the type of fund you are in. Among the various schemes available, investors choose to invest in a mutual fund because of its low-risk factor. But before we go in-depth into the benefits of mutual funds let us understand what a Mutual Fund is.
What is Mutual Fund?
A Mutual Fund is a method of investment wherein investors chip in their share of assets in a fund shared by other investors. In comparison to the lump-sum method of investment, mutual funds are a much safer option.
The Asset Management Company will invest in different securities like shares, bonds, stocks, debts, and other assets provided by the mutual fund companies. And even among these, there are different risk levels involved. Mutual fund companies will allocate the funds they obtain from their investors into these aforementioned securities which result in growth for the investors.
There are many determining factors to the profit/loss of capital in a Mutual Fund scheme. It depends on the type of security chosen and the performance of said securities. One of the biggest factors to consider is the market condition which determines the value of the purchased security.
As already mentioned, the mutual fund companies will distribute this income to the investors. The Net Asset Value is calculated, which involves some deduction, and eventually, these investments are distributed.
Here are the top 10 investing benefits of Mutal Fund:
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Liquidity
Liquidity is about the trade-off that exists between the speed of the sale and how much it sold for. It is the ability to sell an asset quickly with not much loss in price. In a mutual fund, the investors can redeem their units at any time. With considerations to the pre-exit penalty and the exit-load in the lock-in period, mutual funds offer a very flexible withdrawal.
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Diversification
In a Mutual Fund, the investors invest in many different securities, like shares, stocks among others. All these securities will have a rise and a fall, therefore the benefit of investing in a mutual fund means that these falls will not be in tandem. Accordingly, there is a diversification of the risk involved in investing.
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Expert Management
Experts manage and operate the mutual funds, this is very beneficial to a new investor who is inexperienced and unaware about where and when to invest.
Experts are aware of when to exit or to take on the challenges head-on. They can pool in money from investors and accordingly participate in the different securities to bring about profits to the investors. The investors need not stress too hard about the terminologies involved and they can use this as an opportunity to play the field and learn more about investments for future investments,
This is one of the biggest benefits of mutual funds.
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Invest in small steps
One of the most obvious benefits of the mutual fund is the ability to choose how much you want to invest at a time. It depends on the willingness and the current financial state of the investor. This is flexibility not available in other fund schemes.
Opting for a Systematic Investment Plan lets you invest a fixed amount monthly or quarterly depending on the investor.
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The Ease of Mutual Fund
When it comes to investing, mutual funds are easily available to invest in. They are accessible to buy from anywhere in the world. As they are distributed by an asset management company, it makes them available universally. Depending on the available resource, you can easily track the performance of your investment after purchasing it.
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Flexibility in the Maximum limit
In a Mutual Fund, there is a minimum limit of investment required. However, the maximum limit that an investor can participate can increase to however much they are willing.
As with any investment, the investors must consider the capital gain, risk factors, and the goal of the investment before making any major investments.
This flexibility allows a diverse group of individuals belonging to different strata of social income to participate in a mutual fund.
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Transparent and Safe
There are so many benefits of mutual funds and among these is the fact that mutual funds have a clear-cut indication of the level of risk involved per security. This helps investors know how much risk they are taking and what the outcome could be.
This makes the mutual fund a very safe option for investors.
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Lower Cost
The funds are collected from many investors and it is then used to purchase securities. This helps save money on the transactions involved in comparison to a single transaction. As a result, investors save a lot when they participate in a mutual fund.
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Lowest Lock-in Period
A lock-in period is a time in which the investments can no longer be redeemed or sold. Any investor would want the lock-in period to be lowered. In a Tax Saving Mutual Fund, the lowest lock-in period is of only 3 periods. In comparison, other tax-saving options have a maximum period of 5 years.
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Lower Tax on the Gains
There are many types of mutual funds, and depending on the types, you are taxed accordingly. Now with an equity-linked saving scheme, you can save up to Rs. 1.5 lakh per year. It is important to utilize these to extract the best benefits of mutual funds.
The capital gains tax in India is dependent on the mutual fund scheme and the tenure of the investment. However, there are lower taxes available for interested investors, it is a matter of where you are looking.
In Conclusion
Participating in investments opens a lot of doors for profit and the money that you invest now returns to provide a secured future. Therefore, it is important to consider what works best for you per investor. Mutual funds offer expert management, flexibility, tax efficiency which makes it a very desirable investment method. We have listed the top 10 benefits of mutual funds to educate and aid in your investment journey.
Recommended Read: Top 5 SIP Mutual Funds in India to Invest
