There are so many investment options available to the Investors, like bonds, deposits, equities, real estate and so many. But Investment in Mutual Funds is most ignored even though the best available investment option. This article discusses about the advantages of investment in mutual funds in India. In fact these advantages of mutual funds discussed here are more or less applicable to mutual fund investments all over the globe. Following are 10 reasons one should invest in Mutual Funds:
Mutual Funds are Professionally Managed:
This is the very important feature of Mutual Fund. The professionals who manage the mutual funds are called the Fund Managers. And they possess the excellent knowledge about their subject area. There are many Mutual Fund Houses, and there is always competition among them. Therefore the fund managers are always under pressure to give better returns than their competitors. This brings the best out of them. So the Mutual Fund Houses always appoint the well experienced managers who are educated from best and reputed management and financial institutions and universities. And ultimately this works in the best interests of Investors.
Mutual funds enable to access Equity Market:
Almost all the reputed Mutual Fund Houses in India have Mutual Fund schemes which invest in equities. Equity investments are very much necessary, as they can beat the inflation. Many people wish to invest in stock market. But Stock Markets are difficult to understand, so generally people do not invest in stock markets. But due to availability of equity oriented mutual funds, people can easily access stock market. So even though the investors do not have any knowledge of stock market, they can get invested into it.
Mutual Funds offer disciplined Investment:
Mutual Funds offer one interesting feature i.e. SIP (Systematic Investment Plan). With SIP, investors can invest systematically a certain fixed amount in the mutual fund, on a particular date of every month, or every quarter. One important advantage of this is, the investor invests at different levels of stock market, at different times. This facilitates diversification. So it is better than lump sum investment at the one time.
Mutual funds not only facilitate the SIP but also SWP i.e. Systematic Withdrawal Plan. This enable to investor to withdraw certain amount on a particular date of every month, or quarter, as per their need.
Mutual Funds offer Tax Saving:
In India certain investments are eligible as deductions from the Taxable income of the taxpayer. Investments in certain mutual funds are allowed as deduction from taxable income of taxpayer and these funds are called tax saving mutual funds. If the investor invests in these funds he can get tax benefit and access to equities both. The investments in these funds have certain lock in period.
Mutual Funds offer excellent transparency :
Securities and Exchange Board of India governs and monitors the working of Mutual Funds in India. Mutual Funds have to comply with so many statutory reporting requirements. They also have to provide the details of their investments in regular intervals. They also have to provide the information of Net Asset Value (NAV) of the funds regularly. Investors also have readily available data of performance of peer mutual funds and the annualised returns information of different funds for comparison. So this is very good and transparent investment.
Diversification and Safety:
Probably mutual fund is only investment instrument which offers these two things together. Mutual Funds invest in so many shares and securities. Due to this even a small amount of the investment of individual investor is also get diversified. This is the biggest wonder of Mutual Fund. Without mutual fund the small investor would never get advantage of this. Due to diversification the investment is also not dependent on only some limited shares/stock or securities. Mutual Fund literally follow the most important principle of investment i.e. all the eggs should not be in one basket.
Fantastic Past Performance:
The mutual funds in India have excellent track record of good returns. The equity oriented mutual funds have given wonderful returns in last 10 years. Many mutual funds have given the average annualised return of around 17% to 20%. And this much of return is for 10 years continuously is really wonderful. Debts oriented Mutual Funds have also provide nice returns which are definitely more than prevailing interest rates.
This wonderful feature of Mutual Fund investment is usually unnoticed. Open ended mutual funds are the wonderful investment instruments. Any investor can simply buy any number of units of such mutual fund anytime and he can sell also anytime. This is really useful for investor. In case of contingency he can immediately sell and get the money.
Caters to the need of every Investor:
Mutual Funds are available with so many types. There are open ended mutual funds, close ended funds, debt funds, equity funds, tax saving funds. There are mutual funds available for all type of investors, which are best suited to their needs. For risk averse investors there are debt funds. Debt funds invest in fixed income securities. Some investors want to access equity market. For them there are funds which invest in equities. The investors who wish to reduce their tax can invest in tax saving funds. The investors who want to enjoy the liquidity of their investment can invest in open ended mutual funds. Open ended funds are available both in equity and debt oriented mutual funds. This is very good advantage of Mutual Funds.
Simplicity and ease in investment:
Mutual funds offer ease and simplicity of investment. One can start investing with bare minimum amount of INR 500 of monthly SIP (Systematic Investment Plan). This is good thing for small investors. Secondly, it is very easy also. Anyone can simply invest into it, and does not need much knowledge or expertise. One can simply fill the required form and do the investment. Internet savvy people can even apply online also.