The Various Benefits of Mutual Funds

Mutual funds have become a popular topic of conversation among friends and colleagues. While you might know what mutual funds are, do you understand the numerous benefits they offer?

In this article, we will explore the different advantages of investing in mutual funds. But first, let’s quickly review what mutual funds are and Different Benefits of Mutual Funds Investing.

Different Benefits of Mutual Funds Investing and More?

A mutual fund is an investment option that pools money from various investors to invest in different securities such as bonds and stocks, according to the scheme’s objective. Mutual funds come in various types. Based on asset class, they can be broadly classified into three categories:

• Equity Funds: Primarily invest in the stock market.
• Debt Funds: Invest in government bonds, commercial papers, etc.
• Hybrid Funds: Invest in both equity and debt markets.

Benefits of Investing in Mutual Funds

Expert Management

Mutual funds are managed by expert fund managers whose job is to invest in securities according to the scheme’s objective and aim for returns higher than the benchmark. The benchmark is the index against which the fund’s performance is measured.

With mutual funds, you don’t need to make investment decisions yourself; the fund manager decides what to buy and sell on your behalf. Additionally, a team of analysts assists the fund manager in making informed investment decisions.

Diversification

A mutual fund scheme invests in various securities across different maturities and sectors. This diversification helps manage risk. Since the funds invest in multiple securities, the investment risk in a mutual fund is significantly lower compared to investing in a few individual stocks.

Investment in Different Asset Classes

Not all mutual funds invest in the stock market. Different categories of mutual funds, such as debt mutual funds, invest in debt market securities like government bonds and commercial papers, which are less volatile than equities. Hybrid mutual funds invest in both equities and debt instruments. This variety caters to all types of investors, allowing them to choose funds based on their risk tolerance level and investment horizon.

Cost-Effective

Mutual funds are one of the most cost-effective investment options available to individual investors. The expense ratio, which is the cost charged by fund houses from investors, is a percentage of the overall assets. The Securities & Exchange Board of India (SEBI) sets an upper limit on the expenses that can be charged by fund houses. Since investors pool their money into mutual funds, the cost is shared among various individuals, making mutual funds a cost-effective investment option.

Additionally, investors can start with as little as Rs.500 per month, gaining exposure to a diversified portfolio that is cheaper than directly investing in equities or bonds.

Flexible Investment Options

There are two main ways to invest in mutual funds: lump sum investment and systematic investment plan (SIP).

• Lump Sum Investment: Involves making a single investment at a time with no recurring payments.
• Systematic Investment Plan (SIP): Ideal for salaried individuals, SIP allows for regular investments. Investments can be made quarterly, monthly, or weekly, with monthly SIP being the most popular. One can start investing with as little as Rs.100 per month. Investors can also increase their SIP amount annually and make lump sum investments to build a larger corpus and reach financial goals faster.

This is the brief information about the Different Benefits of Mutual Funds Investing and More.

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