The key benefits of investing in mutual funds
- Professional Management: Mutual funds provide the benefit of professional management as people’s money is managed by experienced fund managers. Investors, who do not have time, inclination and the know-how to manage their investments, can look towards mutual funds as an alternative. It is inexpensive and is ideal for a small ticket investor.
- Economies of scale: The way mutual funds are structured gives it a natural advantage. The “pooled” money from a number of investors ensures that mutual funds enjoy economies of scale; it is cheaper compared to investing directly in the capital markets which involves higher charges. This also allows retail investors access to high entry level markets like real estate, and also there is a greater control over costs.
- Diversification: Mutual funds provide investors with the benefit of diversification across different companies and sectors. Diversification in simple terms means to spread your portfolio across different instruments, sectors, industries, companies and countries so that the overall portfolio is relatively safeguarded from downturns in one or more sectors, companies or countries. Since small investors do not have enough money to make meaningful investments across different assets, a mutual fund does the job for them.
- Liquidity: Open ended mutual funds provide easy liquidity and investors can buy or sell units anytime, at the prevailing NAV based prices. Close-ended schemes are listed on a stock exchange where investors can redeem their units at the prevailing market price. Interval funds which are a cross between a close-ended and an open ended structure also provide periodic liquidity option to its investors.
- Flexibility: There are a lot of features in a regular mutual fund scheme, which imparts flexibility to the scheme. An investor can opt for a Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), Systematic Transfer Plan (STP)etc. to plan his cash flow requirements as per his convenience. The wide range of schemes being launched in India by different mutual funds also provides an added flexibility to the investor to build his portfolio accordingly.
- Convenience: Mutual fund companies offer convenient routes to investing in their schemes. Investors can invest through the internet or mobile phone in addition to the conventional option of physically filling up an application form and submitting it. Further, as bank details are required to be submitted at the time of investment, redemptions become very convenient as an investor directly receives the proceeds in the bank account.
- Transparency: The mutual fund industry in India works on a very transparent basis, and various kind of information is available to their investors through fact sheets, offer documents, annual reports etc.
- Well Regulated: Indian Mutual Fund industry is well regulated by the Securities and Exchange Board of India (SEBI). This helps to instill confidence and provides comfort to the investors. The regulatory environment in India transactions. The best practices adopted by the the years. The ease and convenience made available to the investors creates and creates a favourable appeal.