February 14, 2024

Benefits of Mutual Fund

Benefit of Mutual Fund

Benefits of mutual funds include professional management, risk diversification, affordability, liquidity, low cost, strict regulation by SEBI, and tax benefits, especially in ELSS. They offer a managed, diversified, cost-effective portfolio suitable for investors seeking ease and efficiency in their investments.

Content :

What Is Mutual Fund?

A mutual fund accumulates funds from thousands of investors and uses them to purchase securities with the aim of offering decent returns to investors. All the collected funds are pooled together to buy different stocks listed on the stock exchange, money market instruments, government securities, corporate bonds, etc.

Benefits Of Mutual Funds In India

Mutual funds offer several advantages, such as expert management, diversified risk across various assets, cost-effectiveness, easy access to funds, low operational costs, rigorous SEBI oversight, and tax advantages in ELSS.

Expert Management: Mutual funds offer the advantage of being managed by experienced professionals. These managers use their expertise to actively manage the fund’s portfolio, making strategic decisions to align with the fund’s objectives, offering a significant benefit for those unable to manage investments themselves.

Diversified Risk: Investing in mutual funds allows risk diversification by spreading investments across various asset types like stocks, bonds, and gold. This strategy minimizes the impact of market fluctuations on the entire portfolio, ensuring more stable investment returns even during market downturns.

Regulatory Oversight: Mutual funds in India are stringently regulated by the Securities and Exchange Board of India (SEBI), ensuring transparency, investor protection, and fair valuation practices. This regulation provides a secure environment for investors.

Tax Advantages: Investing in Equity-Linked Savings Schemes (ELSS) of mutual funds offers tax benefits under section 80C of the Income Tax Act, with investments up to ₹1,50,000 eligible for tax deductions. Long-term mutual fund investments also enjoy tax efficiency.

Accessibility: Mutual funds are accessible and convenient, particularly for those unable to afford the high costs of buying individual securities. Most mutual funds have low minimum investment requirements, making them an attractive option for investors with limited capital.

Liquidity: Mutual funds, especially open-ended ones, provide the benefit of liquidity. Investors can redeem their units on any business day, facilitating quick access to funds. The time taken for the redemption amount to reflect in a bank account varies by fund type.

Cost-Efficiency: The cost-effectiveness of mutual funds is a significant advantage. Due to the collective investment approach, mutual funds typically have low expense ratios, representing the fund’s annual operating costs as a percentage of its assets.

Benefits Of Mutual Funds In India – Quick Summary

  • Benefits of Mutual funds include expert management, diverse risk management, affordability, easy liquidity, low costs, SEBI regulation, and tax advantages, particularly in ELSS, offering a balanced and efficient investment solution.
  • Mutual funds gather funds from numerous investors to buy various stocks, money market instruments, government securities, and corporate bonds, aiming to provide satisfactory returns to investors.
  • Invest in Mutual Funds completely free of cost at Alice Blue. Open your account in 15 mins now!

Benefit of Mutual Fund   – FAQs 

What Are The Benefits Of Mutual Funds?

Mutual funds offer benefits such as professional management, risk diversification, affordability, liquidity, low costs, SEBI oversight, and tax benefits, especially in ELSS, making them an effective and balanced investment choice.

Is it good to invest in mutual funds?

Mutual funds are considered safer than individual stocks due to their inherent diversification, which reduces risk and volatility in an investor’s portfolio, offering a more stable investment option.

What is the biggest advantage of investing in mutual funds?

The biggest advantage of investing in mutual funds is their accessibility and convenience, with low minimum investment requirements, making them ideal for investors with limited capital.

Are mutual funds 100% safe?

While mutual funds are generally safe and offer diversification with minimal risk, they are not 100% foolproof. Potential downsides like fees might make them unsuitable for some investors.

Can I withdraw mutual fund anytime?

Yes, you can typically withdraw from most mutual funds at any time, except for those with specified lock-in periods where withdrawals are restricted until the period expires.

Is mutual fund better than FD?

Mutual funds and Fixed Deposits (FDs) serve different financial goals. FDs offer safety and steady returns, while mutual funds provide higher potential returns with increased risk and professional management.

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