Chapter 6 – Advantages of Mutual funds
There is a plethora of investment options available for an investor and one of them is Mutual Funds. Mutual Funds are termed as the best form of investment for all kinds of investors. Here is a list of the reasons of mutual funds being the best option for an investor.
- Diversification: Diversification is spreading your investment within the same asset class but in different companies. Diversification allows an investor to reduce investment risks while potentially improving investment returns. Achieving diversification on your own can be tedious and costly while Mutual funds allow an investor to diversify into many different stocks for a nominal investment.
- Variety: Mutual funds have something in store for everyone. Be it a conservative investor or an aggressive investor, someone who wants to make a sector specific investment or do only large caps. Mutual funds offer a number of options to suit the needs of every investor. An investor can handpick any combination of funds to meet his financial goals.
- Affordability: Investments in mutual funds can be done from as low as 500 Rs. Also it costs very less to manage a mutual fund than maintaining individual stocks or portfolio.
- Professional Management: The biggest difference between a self-managed portfolio and mutual fund is that, mutual funds are managed by a team of professionals who track the movements of securities closely. Mutual fund allows an individual to enjoy the things that they love, rather than, spending time in managing a portfolio.
- Liquidity: An investor can get in and out of Mutual Funds at any time. It is possible to sell mutual Funds in short period also. There may be a nominal exit load for early withdrawals.
- Transparency: The performance of every mutual fund is reviewed by many agencies and is available on many websites. As a unit holder, you also get periodic and regular updates from the AMC about the performance of your Mutual Fund.
- Accessible: Mutual funds can easily be purchased and sold. There are many apps available where you can buy direct mutual funds in which you do not have to pay any commission.
- Discipline through SIP: Mutual funds have Systematic Investment Plan (SIP) option through which you can invest a specified amount each month through auto debit. It makes you disciplined and ensures your investment is done without any lapse.
- Tax Benefit: Equity Linked Savings Scheme (ELSS) of mutual fund provide income tax benefit up to Rs 1,50,000 under income tax section 80C. ELSS has the shortest lock-in (3 yrs) among all the investment options under this section.
Back to Chapter 5 – Difference between regular and direct plan?
Continue to Chapter 7 – Terminologies of Mutual Funds.
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