Mutual funds offer several benefits to investors, chief among them being stable growth and high capital appreciation. Mutual funds (MF) have risen in popularity amongst market-linked products in recent years, particularly for the many benefits they offer.
They are cost-effective and many of them also offer a lower risk. MFs have become the go-to investment option for every serious investor. The best part of investing in the mutual fund is that there are different types of funds available as per your risk-taking ability. And at the same time, you can also enjoy investing in the stock market.
Consider the 5 important benefits of mutual fund products:
1 Risk mitigation through diversification.
Risk mitigation is the process by which one reduces risk in a particular asset or process. Mutual funds are not as risk-prone as a novice investor would initially assume. Since they invest your money across different securities, the risk of loss is evened out due to diversification. The money is not invested in just one type of security – it can be invested in bonds, shares, etc. If one type performs badly, the loss is balanced by another doing well.
2 Simple to analyze.
There are so much information and real-time data available on market-linked securities that it can overwhelm you. Going through this data can be time-consuming. However, MFs collect and research all the relevant data by themselves, so you don’t have to.
Besides, you can compare the funds based on various metrics like price, return, risk propensity, etc. All this information is easily accessible, so monitoring and analyzing the fund becomes much simpler. You can even steer the investment in a different direction based on real-time market inputs.
3 The relative ease of liquidity.
Another advantage of MFs is not only can you easily apply for mutual funds online, but you can also liquidate them quite easily. Liquidity is the underlying benefit of the asset to be converted into cash when the need arises.
Mutual fund products are liquid assets which can be encashed quickly because the market is always clamoring to buy good funds. Your fund manager can advise you on the right time to sell to maximize the fund’s returns.
4 Tax efficiency.
Under prevalent income tax laws, you get tax rebates under varying sections for investing in MFs. For example, if you invest in an ELSS (Equity Linked Savings Scheme) then you get tax benefit up to Rs 1.5 lakh per year under Sec 80C of the Income Tax Act, 1961.
Besides, you are not charged LTCG (Long Term Capital Gain) tax on equity mutual funds, even when you sell the fund one year after buying it. LTCG only applies to debt funds when you hold them for 3 years or longer.
5 Professional management of the asset.
Investing in gold, bonds, shares, stocks, etc. is never easy. It needs constant market monitoring and data analysis – which you may not be equipped to do. But MF houses assign expert fund managers to track your mutual fund product for you. The fund manager offers valuable guidance for the fund to grow in the right manner.
So, without worrying about the ups & downs of the share market, one can easily start investing in mutual funds to create a short-term corpus or even a long-term wealth.