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.
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:
- SIP
- Lumpsum
- 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a fixed amount is withdrawn periodically.
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.
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.
For portfolio enquiries, email us with your doubts at info@themutualfundguide.com
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