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From a good-to-have investment option to a must-have investment, Mutual Funds have come a long way. Mutual Funds have become an indispensable option for investors across the spectrum. Whether an investor is new to the market or a veteran, everyone vouches for Mutual Funds. The ease of investment, lesser requirement of investable funds, professional management and the benefits of diversification are some of the biggest advantages that Mutual Funds offer. Everyone is aware about the gains of Equity investing but not many investors have the knowledge to pick the right stocks. Risk-aversion is also a factor. However, Mutual Funds have come to their rescue and now even they are able to reap the rewards of stock market investing.
Though Mutual Funds have lot many advantages, it must be remembered that it also carries a certain set of risks because its underlying asset classes are linked to the markets.
Top Advantages of Mutual Funds
Mutual Fund is one of the only options that allows you to get the best of all worlds. This assorted asset base also plays a big role in reducing your risk. Exposure to various asset classes distribute your risk. Each Mutual Fund is designed in such a way that the risks are well-balanced. The losses incurred by one class will also be negated by the gains arising from the other asset class. It also happens that the one of the asset class always acts as a cushion and protects your capital against any market uncertainty. However, there also exists several funds which risk are purely based such as Mid -Caps, a combination of Large and Mid-Caps, Commodity Funds, NFOs etc. If you want to enjoy the benefits of diversification, you should opt for diversified funds, balanced or Hybrid Funds which are a good mix of Equity and Debt.
Except for close-ended funds, it is comparatively easier to enter and exit Mutual Funds. You can offload your units at any point, however you need to know about the exit loads and pre-exit penalties that are associated with it. It is to be noted that mutual fund transactions happen once daily after the fund house discloses NAV for the particular day. Liquidity is one of the most preferred qualities of the investment because you can access your funds in times of need. If your investment allows you to withdraw funds, then you can also plan your finances better.
A unique feature of the Mutual Fund is the Systematic Instalment Plan (SIP). Through this, investors have an option to opt for a pre-determined amount that will be debited from their account each month either through direct debit or cheque payment. This not only makes Mutual Fund an affordable option for everyone, but also helps investors to plan their finances better. On the other hand, there is also an option to invest in lump sum if the investor wishes to do so. Hence, there is no thumb rule of investment mode in Mutual Fund. It allows complete flexibility to the investor who can choose his preferred mode at convenience.
A good basket of investment is a must have for all, but not everyone can afford to commit a huge amount. Mutual Fund is an investment vehicle that is for every investor irrespective of their income and financial condition. Unlike ULIPS or Insurance Policies which specify a particular premium, a Mutual Fund allows the investor to decide what amount he would want to invest. An investor can start with as low as Rs 500 or he can invest a huge amount of Rs 5 lacs. It totally depends on the discretion of the investor so that he doesn’t feel burdened or disturb his other commitments. He can choose a convenient amount and follow a disciplined process of investment.
Most of us are so wary about choosing the right investment and tracking it that we conveniently shy from it. Wouldn’t it be great if all we had to do was to invest a sum of money and rest would be taken care of? Mutual Fund does just that. Most of the Mutual Funds in India have on board highly qualified and experienced Fund Managers who manage your investments with great professionalism. Their major target is to beat the benchmark returns each time. Depending on the kind of fund, they choose a fund management style. For index-based funds, the fund management style is passive but for pure equity or debt funds, the fund management style is active.
Mutual Fund is a highly regulated industry. Securities and Exchange Board of India (SEBI) is the regulatory authority that controls the management of the mutual funds. The industry works according to the rules and regulations laid down by the SEBI. AMFI or the Association of Mutual Funds of India is also another body governing the Mutual Funds industry in India. If the Asset Management Companies (AMCs) try to indulge in any malpractices they will be held accountable and be penalized for their actions. Hence, as an investor you have to worry less about any kind of fraudulent practises. You can be assured about your money being in safe hands.
Mutual Fund industry is cost-effective because the fund expenses are spread across a vast investor base. Every Asset Management Company charges certain fees for professional management of the fund and its administrative expenses. But since the investor base is large, economies of scale comes into force and thus reduces the cost overall.
Every individual has definite goals in life which change according to stages in life. So be it marriage, travel, purchase of home, education of children or medical expenses for the elderly, Mutual Funds can be used to fulfil every goal. All you need to do is plan things in advance and opt for the correct fund to fulfil your goals. Your Relationship Manager or Personal Financial advisor will guide for the suitable schemes according to your goals and risk appetite. There are a variety of Mutual Funds such as long-term, short-term, ultra-short term and medium-term to suit various investment horizons. Very few investment vehicles offer this kind of customisation and Mutual Fund is one of them.
Investment in Mutual Funds is absolutely hassle-free. All you need to do is choose your fund which can be done either online or offline, complete your KYC application, select the payment mode and you are good to go. There aren’t too many applications, verification steps, medical tests or middlemen involved in the process, which makes Mutual Funds quick, hassle-free and absolutely convenient. Even after investment, tracking the performance of the fund, exiting from it or adding a new fund also happen with just a single intimation. Will so little iterations between the Asset Management Companies and investors, Mutual Funds are definitely an easy option.
Not just life insurance, mediclaim policies and ULIPs, but even the Mutual Funds also offer tax-saving options. Taxes are inevitable, and every investor does his best to save taxes. You can invest up to Rs. 1.5 lakhs in tax-saving mutual funds such as Equity Linked Savings Scheme (ELSS) mentioned under 80C tax deductions. It is to be noted that after the latest Budget announcement, a 10% Long Term Capital Gains (LTCG) is applicable on the returns after one year. However, tax-saving mutual funds have usually delivered higher returns as compared to other tax-saving tools such as FD, Life Insurance, etc.
(1) Does Mutual Funds have any disadvantage?
Purchasing a Mutual Fund can only be disadvantageous if you do not choose the right fund for yourself. If the fund is not aligned to your goals, it can lead to losses.
(2) How can I manage tax with Mutual Funds?
Mutual Funds can also be used for tax efficiency. Investing in Equity Linked Savings Scheme or ELSS can help you to save taxes under section 80C up to the amount of Rs 1,50,000 p.a.
(3) How can Mutual Funds help me to fulfil my financial goals?
By choosing the right mutual fund, right investment horizon and the right amount to be invested, Mutual Funds can help you to fulfil all your major life goals.
(4) Is the Mutual Fund industry well regulated?
A mutual fund industry is well regulated by the SEBI and the AMFI. These two bodies oversee the functioning of Mutual Funds in India and prevent the occurrence of any fraudulent activities.
(5) Is it mandatory to opt for the SIP?
No. SIP or the Systematic Instalment Plan is a facility provided to the investors for easy management of the funds but is it not mandatory. However, if you wish to invest a lump sum amount you can still do so without any hassles.
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