We had earlier written that almost all financial Investments available today are in the from of Mutual Funds. Mutual Funds, as we described are basically on OUTSOURCING AGENCY where we give them our money to manage as they are more specialized and they charge a fee to manage it.
Now there are certain benefits of mutual fund in India:
1. Professional Management
Fund Managers handling your money are those people who have a thorough knowledge and immense experience in the field of the Financial Market. There is always a team of people who look after investments. There are processes and research-based investment is done both in the bond/ Debt and Equity market. If you were to look at the average return based on various Equity Funds and the return generated by the overall market, you will find that Fund Managers have done their job well and they have given a better return that the overall market in long run.
Diversification is needed for the safety and stability of your investment portfolio. Since Mutual Fund is pool money and through this pool, a manager invests in various stock and securities, it gives the benefit of diversification to the common investor. He/ She just to invest in the common pool and thru this pool, diversification can be done. For Individual investors. it is not possible to have diversification in a real sense as the amount of investment is often too small to buy different securities.
3. Low Cost
Going by train is going to be always cheaper than going by your own vehicle. The same rule applies to Mutual Funds as well. Since they deal with a huge amount of money pooled by thousand of investors, their cost of handling comes down. Economies of Large scale pull the cost of handling money too much low levels.
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4. Systematic or one-time investment
When it comes to mutual fund investment, there are a variety of options to choose from depending on your budget and convenience. For example, if you have less money, starting a monthly or quarterly SIP in an equity fund may be a more suitable option. However, if you have a larger sum of money to invest, a one-time lumpsum investment in a debt fund may be more appropriate.
Since the investment in Mutual Funds is denominated in terms of UNITS, there is a lot of flexibility that you carry. You think of any permutation and combination of adjustment that you require, it can be done. For example, you can invest in parts, you can withdraw in parts, you can switch in parts to other schemes as well. In fact, there is no flexible investment tool other than Mutual Funds available for investors.
The investment done in Mutual Funds are always available for withdrawal except in the case of Tax Saving schemes and schemes that carry mandatory lock-in as its feature. the money can be withdrawn or redeemed just by singing a redemption and, money gets credited to your bank in 1-3 working days. In fact, we keep guiding investors that unless you require tax savings, don’t get into any schemes which lock your money. The fact of the matter is that manufacturers of financial products like insurance etc. come with lock-in products more for their benefits or for the benefits of agents.
Transparency is the key benefit of investing in Mutual Funds. You as an investor would know where your money is invested, what is the value of their investment on the closure of each working day. The regulator SEBI has also mandated various other clauses which make mutual fund investment crystal clear. The charges levied are also clear which is the main concern for most of the investors.
There are plenty of options available for an investor to choose from. Depending on his time horizon, his needs, his return expectation, he can choose as per his objective. you have options in Debt, Equity, money market, Gold, ETF, International Market, and what not markets.
9. Tax Benefit
Tax benefits on Mutual Funds keep changing from time to time. According to taxation on mutual funds in the financial year, 2021-2022 few of the tax benefits are:
- No long term gain tax on the sale of equity mutual fund (if your gains are below 1 lakh)
- The benefit of indexation in the case of debt mutual fund
- Lower long term gain tax in comparison to any other interest-bearing product