Advantages of Mutual Funds explained in detail


Mutual Funds as a medium of investment has gained acceptance in the past few years.

Despite that, the ratio of mutual fund investors to the actual population is still on the lower side.

With any investment, it is only natural to look out for the advantages that it holds.

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Professional Management

Your money is managed by qualified and professional fund managers.

These fund managers themselves are backed by an investment and analyst research team.

You get this expertise at a reasonable cost considering the economies of scale.

Someone who invests only 500 per month gets the same expertise as someone who invests 50000 per month.

All fund related research from where to invest and how much to when to move out of a particular scrip is taken care of on your behalf by these experts.


Additional reading: Click Here to read whether you should NOT invest in Equity mutual funds

Modes of Investment

There are various modes to invest in mutual funds.

These include:

  1. SIP
  2. Lumpsum
  3. STP

A SIP stands for Systematic Investment Plan where you invest a fixed amount on a fixed date either daily, weekly, monthly, bi-monthly or quarterly.

A lumspum means a one-time investment.

A STP stands for Systematic Transfer Plan wherein you first invest in a liquid or debt fund from where the amount is periodically shifted to your preferred equity fund.

For redemption too, you can either redeem the entire amount in one go, in several tranches or avail the Systematic Withdrawal Plan wherein a fixed amount is withdrawn periodically.


Are you investing in the right mutual funds?

Low Investment Amount

For SIP’s you can begin with as small as Rs 100 whereas for lumpsum the minimum amount is only 5,000.

Certain schemes also permit as low as 500 & 1,000 as lumpsum amoumt.

Irrespective of the amount, your investments receive the same expertise by the fund managers as someone investing even more than ten times your amount.

This means you can start even with a small amount in case you wish to test the waters and gain experience before increasing the amount.


Variety of Options

There are more than 40 registered AMC’s in the country offering more than 2,000 mutual fund schemes.

These mutual fund schemes themselves invest in a variety of market caps and asset classes run by different fund managers applying varying strategies.

These mutual fund schemes can invest in domestic as well as international markets, in various commodities like gold and also government securities.

Knowing where not to invest is a lot more important than knowing where to invest.

You should ideally go for funds after evaluating your risk profile and those that match your risk profile.


Additional reading: Click Here to read Why you need a financial plan 

Low Costs

Because the costs are divided among various unit holders, the cost of investing is significantly lower for an individual investor.

This is due to economies of large.

On top of that, mutual funds cannot charge more than a prescribed limit.

In case there are any changes to the cost, then they are also required to update you on the same.

This therefore results in transparency of costs.


Potential of Returns

In the long run, that is 5 years and beyond, equity mutual funds have the potential to easily beat the returns generated by traditional saving instruments like fixed deposit, gold, etc.

Not only this, they can also beat inflation with a healthy margin.

Of course, this only refers to the potential and does not mean the returns are guaranteed.

In the short term equity markets tend to be very volatile and therefore the returns too mostly linger on the lower side but in the long run it gets more stable.


Are you investing in the right mutual funds?

Highly Liquid

Mutual fund schemes are highly liquid.

They can be sold off as and when you like and the money will be credited to your bank account within a couple of days.

Unlike say real estate, you do not need to wait for a buyer.

Of course your investments would be subject to taxation and exit load wherever applicable.

Certain mutual fund schemes like ELSS Funds (Tax Saving ) and solution oriented schemes like Child Plans & Retirement Plans have a minimum lock in period during which you cannot redeem your investments.


Tax Saving Plans    

An ELSS mutual fund scheme or a Tax saving fund allows you to invest up to 1,50,000 to claim exemptions with your taxes.

This is possible under Section 80c of the Income Tax Act.

It has the lowest lock in period among all the tax saving options like FD’s & PPF’s while at the same time, also boasts of the highest returns potential.


Well Regulated  

Mutual funds in India are well regulated by the Securities & Exchange Board of India (SEBI).

Fund managers and all those involved in the management of mutual funds as well as intermediaries need to adhere to the strict guidelines laid down.

The Net Asset Value of the fund is updated daily and mutual fund schemes cannot charge more than what is the prescribed limit.

In case of any changes to cost, they need to keep the investors updated of the same.

Same is the case with change in fund manager, change in fundamental attributes of the scheme, etc.

Mutual fund schemes need to disclose before offering any new fund offer the fundamental attributes of the scheme and need to make sure the fund is run in accordance to the rules of the category.


Investing in mutual funds means you have the option to invest in different asset classes via one single route.

This is more feasible than having to invest in each asset class separately.

Mutual Funds offer solutions to a variety of goals for investors with different risk profiles.

Granted returns from mutual funds are not guaranteed but it is extremely difficult to find an investment product that encompasses so many advantages.


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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

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