What is a Mutual Fund?
To many people, Mutual Funds can seem complicated or intimidating. We are going to try and simplify it for you at its very basic level. Essentially, the money pooled in by a large number of people (or investors) is what makes up a Mutual Fund. This fund is managed by a professional fund manager.
It is a trust that collects money from a number of investors who share a common investment objective. Then, it invests the money in equities, bonds, money market instruments, and/or other securities. Each investor owns units, which represent a portion of the holdings of the fund. The income/gains generated from this collective investment is distributed proportionately amongst the investors after deducting certain expenses, by calculating a scheme’s “Net Asset Value
What Are The Advantages And Benefits Of Mutual Funds In India?
Any Investment plan has its own advantages, be it for the short term or long term. Investors are usually keen on investing in Mutual Funds because of risk management. However, needless to say, these investments also come with some disadvantages. But before we dwell upon the advantages and disadvantages of Mutual Funds let us first know what the Mutual Fund scheme is.
The most important benefit of investing in a Mutual Fund is that the investor can redeem the units at any point in time. Unlike Fixed Deposits, Mutual Funds have flexible withdrawal but factors like the pre-exit penalty and exit load should be taken into consideration.
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The value of an investment may not rise or fall in tandem. When the value of one investment is on the rise the value of another may be in decline. As a result, the portfolio’s overall performance has a lesser chance of being volatile.
Diversification reduces the risk involved in building a portfolio thereby further reducing the risk for an investor. As Mutual Funds consist of many securities, investor’s interests are safeguarded if there is a downfall in other securities so purchased.
A novice investor may not have much knowledge or information on how and where to invest. The experts manage and operate mutual funds. The experts pool in money from investors and allocates this money in different securities thereby helping the investors incur a profit.
The expert keeps a watch on timely exit and entry and takes care of all the challenges. One only needs to invest and be least assured that the rest will be taken care of by the experts who excel in this field. This is one of the most important advantages of mutual funds
Flexibility to invest in Smaller Amounts
Among other benefits of Mutual Funds the most important benefit is its flexible nature. Investors need not put in a huge amount of money to invest in a Mutual Fund. Investment can be as per the cash flow position.
If You draw a monthly salary then you can go for a Systematic Investment Plan (SIP). Through SIP a fixed amount is invested either monthly or quarterly as per your budget and convenience.
Investing in a good plan not only derives a good profit but also secures one’s life. Money invested now will lead to a safer tomorrow. Hence, one should plan an investment according to one’s needs and risk-taking capacity
With advantages of mutual funds like expert management, cost-efficiency, hassle-free process, tax-efficiency this makes for a better investment scheme.