All the Benefits One Should know about having a Mutual Fund

If you are wondering about the benefits of Mutual Fund you have come to the right place. A mutual fund is a program of investment that is funded by the shareholders which commence in trades of diverse holdings and normally managed professionally. Adding Mutual fund to the portfolio of one’s investment should seriously be taken into consideration whether the entrepreneur is either seasoned or not. But before that, one should know properly what the advantages of the Mutual Fund is and their disadvantages. This article will help you understand the benefits and such of the Mutual Fund in order for you to a wise decision.

Benefits of Mutual Funds

LIQUIDITY

  • If someone wants to apply for a close-ended mutual fund, one may not find this beneficial.
  • Unless that, it is fairly easier to either buy or exit a scheme
  • When the demand and market value is high, the entrepreneur can sell his units any time he wants.
  • However, it should be mentioned that one has to be careful about surprises like the pre-exit penalty or exit load
  • It should be remembered that the mutual fund transaction occurs only one time a day when the NAV of the day has already been released by the fund house.

DIVERSIFICATION

  • Because the performance of the mutual funds is dependent on the movement of the market, this system possesses their fair share of the risks.
  • Therefore, the manager of the fund has to invest in separate classes of an asset in order to minimize the risks involved.
  • Asset class includes debts, equities, and money market instruments and so on.
  • This process of minimizing the risks is called diversification
  • Using this method, compensation with higher returns can be made if one of the asset classes do not work accordingly.
  • This helps to avoid the loss of the investors

EXPERT MANAGEMENT

  • The main hurdles for the investors include allocation of funds and doing research
  • With the help of Mutual Fund, investors do not have to waste time on such procedures
  • All these are taken care of by an asset manager
  • The asset manager makes the decision of what to do with the investment one made
  • Decisions such as whether to make an investment in the debts or equities and such are made by the asset manager
  • The reputation of the chosen fund manager should be a crucial criterion in order for the investor to choose any mutual fund
  • The ratio of expense include the fee belonging to the manager as well
  • According to the AUM guidelines of the SEBI, the expense ratio must not cross 2.25%

LESSER COST OF BULK TRANSACTIONS

  • When someone buys a product, the price usually drops as the volume increases
  • For example, a bag of rice may cost Rs 20, but 5 bags of rice may cost Rs 75
  • This same regulation is applied to the units of the Mutual Fund, too
  • If the investors buy a bundle of units all at once, the fee of processing along with other compensations and commission will be very less compared to when he buys one single unit.

INVEST DONE IN SMALLER DENOMINATIONS

  • By making investments in smaller denominations or SIP, the investors get exposed to the full stock and any other asset class.
  • This falls under the benefits of mutual funds
  • This, in turn, diminishes the average expenses of the transaction
  • The investor is benefited from the highs and lows of the market system following this method
  • The investor gets a rupee-cost averaging if he makes regular investments, either monthly or quarterly, compared to the bulk investments

SUITING THE FINANCIAL GOALS

  • Various types of Mutual Funds exist in India ready to avail
  • They cater to the investors from every sphere of life
  • It does not matter how much someone’s income is, it’s always smart to save some money in order to invest
  • It is easy to discover a mutual fund which matches the expenditures, risk appetite, income, and the investment goals

COST EFFICIENT

  • There is an option to choose the mutual funds with a zero load and face lesser expense ratios
  • The investor can check and compare several mutual funds and pick the one that suits the budget and his monetary goals
  • The fee one has to pay for the management of the funds is called an expense ratio
  • It is a very important part to make a proper assessment of the performance of the Mutual Fund

EASY PROCESS

  • The investor can diversify gradually starting from just one mutual fund
  • It has become easier nowadays, to identify and select the fund that is most appropriate for the investor
  • This is one of the benefits of mutual funds
  • It is also quite fast and effortless keeping the maintenance of the funds and regulating it
  • It is the job of the fund manager to select how, when and where to invest the money
  • Basically, it is their job to ensure that the investor gets the maximum returns

TAX EFFICIENT

  • The investor can make an investment of up to Rs 1.5 lakhs in the tax-saving mutual funds mentioned under the 80C deductions of taxes
  • An example of such kind is ELSS
  • After one year, a 10% of Long-Term Capital Gains becomes applicable for the returns
  • But it is to be mentioned that, far better returns have been made by them compared to the other tax-saving mechanisms like the FD within the recent years

AUTOMATIC PAYMENTS

  • There are several reasons to why investors may forget or be late in SIPs or prompt lump sum investments
  • In this case, the investor can apply for a quick and easy automated paperless payment with the help from his agent of the house of fund
  • Emails made on time and notifications through the SMS can help overcome such kinds of carelessness.

SAFER TO USE

  • It is a common misconception that the mutual funds are just as unsafe as the products of the banks.
  • Such myths are already debunked since it is known that the fund houses are under strict and constant surveillance of the statutory government figures like the SEBI or the AMFI.
  • It is easy to verify the fund house credentials and the asset manager provided by SEBI
  • They also offer an “impartial grievance redress platform” which work for the interest of the investors

INVESTMENT OF ONE-TIME

  • It is easy to plan the investment of the mutual according to the convenience and budget of the investor
  • For example, if the investor possess less money, he can simply start with a SIP (Systematic Investment Plan) on a quarterly or monthly basis
  • Meanwhile, if the investor dares to invest more money, he can totally opt for lump sum investment of one-time

Drawbacks of Mutual Funds

Like every other idea or object around the world, Mutual Funds comes will some disadvantages as well along. You have learned about the benefits of Mutual Funds. Below, there are a few drawbacks of the system. But compared to the benefits, these are significantly low in number.

PERIODS OF LOCK-IN

  • It is disappointing to mention that many mutual fund face lock-in periods for a long time, traversing a time frame of 5 to 8 years
  • Quitting such investments before they maturity can be quite an expensive task
  • Even though a specific portion of the fund remains untouched to pay off the investors if necessary, the amount of money is not very satisfactory.

COST OF MANAGEMENT

  • It is normally the job of the investor to ensure the salary of the fund manager and the market analyst
  • It is really important to take into consideration when one is thinking about opening a mutual fund.
  • Total fund management can be a difficult hurdle
  • A huge amount of fee of management do no ensure a better performance of the fund

DILUTION

  • It is deemed well that diversifying can minimize the risk of the loss.
  • However, this can also dilute the profits
  • There it is recommended that the investor does not make more than 4-5 mutual funds all at once

From the above two comparisons, it is quite evident that the benefits of mutual funds definitely override the drawbacks of the program. If the investor makes the appropriate decisions, he can easily overcome the hurdles and get a better financial feedback.

Here at Company Vakil, we help you with your journey into this new arena of finance and make the trip to your success a pleasant journey by introducing to you the best and top-rated fund houses from around the country for you to enjoy the benefits of mutual funds.