As an investor your first requirement would be to get the most out of your investment; but you may not have the time or in-depth knowledge of the stock market to keep track of them. While there are some people who base their judgements on their own personal understanding of the market, others prefer to give their savings in the hands of professionals to get greater returns on their investments and benefit in the long run. Mutual Funds not only assist with professional guidance but also provide several other benefits that make the process of investing seem simpler and interesting.
The first and greatest advantage of MFs is Professional Management of investments. You do not need to struggle with the market and try to understand every aspect of it since there are people who can do that for you with great ease! The Research team analyses and studies the market’s performance. With the kind of data and knowledge at their disposal, they can give you timely updates on the movement of the market and your portfolio. This eliminates the need for individual investors to perform detailed studies and analysis and helps them reap in the benefits of a professionally handled portfolio. All you have to do is select a scheme in accordance with your objective.
The most important objective of Diversification is to reduce the risk of potential loss that an investor might have to bear. This means that your portfolio (the range of stocks held by you) will consist of stocks from varied sectors, companies and regions in order to balance out the underperformance of a particular security. This diversification can be achieved in a Mutual Fund with far less money than you can do on your own.
In open-ended MFs, you can redeem all or part of your units at any given time, as and when you require funds. Since there is a standardized process to be followed, you can get your cash in hand as soon as possible. There are certain schemes in which there is a lock-in period, during which the investor cannot sell/buy any units until the lock-in period expires. Funds are more liquid when compared to shares, bonds and deposits.
Mutual Fund transaction expenses are merely a fraction of what one would pay a broker for an actively traded portfolio of individual securities. Mutual funds buy and sell securities in large volumes which allow investors to benefit from lower trading costs due to the economies of scale. The smallest investor can get started because of minimal investment requirements.
There are several schemes offered by a Mutual Fund house. As an investor you need to identify your requirements, the time frame of your investment and your risk appetite. Accordingly, you can select a scheme that incorporates all these needs in one scheme and invest in it. There is also no compulsion of making large investments. Since MFs cover virtually all of the major asset classes and investing styles you can enjoy the same degree of diversification as some institutional investors but with choices depending on your requirements.
Income earned from MFs as dividend is tax free. Long term capital gains are taxable at a low rate. There are also certain schemes that have various kinds of tax-benefits when compared to others. Always make sure you discuss all these aspects with your Advisor if you are trying to identify a scheme which offers you tax benefits.
Mutual Funds are required to make detailed disclosures of investment objective, strategy, portfolio composition, etc., to investors. The performance of a Mutual Fund is reviewed by various publications and rating agencies, making it easier for investors to compare one fund to another.
Mutual Funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI). All funds are registered with SEBI and complete transparency is enforced. MFs are required to provide investors with standard information regarding the selected schemes and the investments made by the funds.
Mutual Funds mobilises small and scattered savings of the public. These mobilised funds are then invested in various businesses and industries. In this manner, MFs also facilitate capital formation and thus, contribute to the growth of stock market in the country. Growth of businesses and industries in turn leads to growth of the economy at large.