Advantages of Mutual Funds in India | Net Asset Value (nav) of a Mutual Fund
Following are the Advantages of Mutual Funds Investing:
- Convenience - The investment process is very easy and convenient. One needs to keep only one account statement of mutual fund and enjoys the benefits of a diversified portfolio. Investors can buy or sell mutual fund on any business day. Mutual fund also uses the services of a high quality custodian and registrar and keeps the convenience of its investors on top priority.
- Small investment - One can make very small investment as low as Rs 1000/- in a Mutual Fund hence it offers an opportunity to small investors having limited funds to invest.
- Cost Efficient - As mutual fund is a pool of money of large number of investors; the amount of investment made in securities is large. Therefore, it needs to pay lower brokerage because of economies of scale.
- Liquidity - Mutual fund are always willing to buy back units from investors on the prevailing prices of the scheme and the investors can sell their holdings in mutual fund anytime without any difficulty. In open-ended mutual funds, one can sell his mutual fund units any time he wishes. In close-ended schemes, one can sell the units on a stock exchange at the prevailing market price of the fund.
- Higher Returns - Mutual fund generates higher returns as compared to a common man due to investment in diversified portfolio and economies of scale.
- Diversification - Mutual fund distributes the investible funds across a diverse range of assets. It particularly offers the best investment opportunity to the investors who have a limited fund for investment. It, therefore, permits risk diversification without an investor having to invest large amounts of money.
- Professional Management - Mutual fund hires full-time professional fund managers to manage the funds who have experience in investment in different securities. These fund managers have real-time access to crucial market information and they can execute trades anytime during market hours. Mutual fund also hires an investment research team to analyze the performance & prospects of various companies and select suitable companies for investment in order to achieve the objective of the scheme.
- Safety - Trustees are appointed by every mutual fund to look after the safety of the interest and funds of the investors.
- Flexibility - One can find flexibility in any type of transactions. Anytime the amount can be switched from one scheme to another. There is a facility of partial withdrawal of funds. One can make a regular investment using SIP route.
- Choice of schemes - Variety of schemes and options are available in mutual funds for investors and they can choose any of them which suit their investment objectives.
- Transparency - Mutual fund declares prices of open ended mutual funds on daily basis. Updates on the value of your investment are also available on a regular basis. The portfolio is also disclosed regularly i.e. every month along with the fund manager's strategy and outlook for investment.
- Beat Inflation - Mutual funds help investors get better inflation adjusted returns.
- Tax Benefits - Mutual fund dividends are totally tax-free in the hands of the investors. Mutual fund investments for over 12 months are eligible for long-term capital gains. There is no TDS (Tax deducted at source) on redemption of the units in case they are "resident" under the Indian Income Tax Act, 1961.
- Well-regulated industry - Mutual funds are regulated by Security and Exchange Board of India (SEBI) and they have to function under strict regulations designed by SEBI in order to protect the interests of investors. Therefore, investors can be assured of their investments being managed in a disciplined and regulated manner.
- Lump Sum or Systematic Investment Options - There are 2 options of investing your funds in mutual fund. One is systematic and the other is lump sum. In systematic investment you can invest a small amount every month or every quarter as per your choice. It gives cost of averaging. In a lump sum investment option, you can invest your surplus amount anytime in one go. You can choose either of them or both according to your wish.
- Helps Achieving your Financial Goals - Through investment in mutual funds, you can achieve your financial goals such as child's education, children's' marriage, Buying an asset, retirement funds, etc.
- Opportunity for Capital Market Investment - You need an expertise to invest in capital (equity) market. If you do not have such expertise still invest, then you may incur losses. Through mutual fund investment, you can invest in capital market without worrying about not having any expertise as mutual fund schemes are managed by professional fund managers who have in-depth knowledge of managing the funds.