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What are the advantages of investing in mutual funds?
There are advantages galore of investing in mutual funds. We decode some of them for you here.
A mutual fund scheme is a form of financial entity made up of a pool of money gathered from a number of different participants. Mutual fund firms engage in securities such as business shares, bonds, stocks, loans, and other assets through AMCs.
Many people find managing their own finances quite challenging. It is difficult to research and analyse firms on one's own, as well as transact to purchase and sell various securities. For a modest charge, a mutual fund provides you with a skilled fund manager. This fund manager buys and sells businesses, evaluates them, and keeps track of them on a regular basis.
While you may be aware of some of the more well-known mutual fund advantages, there are a few lesser-known perks that you may not be aware of. To get the most out of your investment, it's critical to understand all of the benefits given by mutual funds before you invest. Let us discuss the benefits of investing in mutual funds.
Advantages of Mutual Funds
Liquidity
Unless you choose closed-ended mutual funds, buying and selling a mutual fund plan is very simple. When the stock market is high, you can profitably sell your open-ended equities mutual fund units. Keeping a watch on the mutual fund's exit load and cost ratio is advisable.
Advanced Portfolio Management
You pay a management fee as part of your cost ratio when you buy a mutual fund, which is used to engage a professional portfolio manager who buys and sells stocks, bonds, and other securities. This is a tiny amount to pay for expert investment portfolio management assistance.
Dividend Reinvestment
As the fund's dividends and other interest income sources are announced, they may be utilised to buy more mutual fund shares, allowing your investment to expand.
Risk Reduction
Diversification helps to reduce portfolio risk, since most mutual funds would invest in anywhere from 50 to 200 different assets, depending on the emphasis. Several mutual funds that invest in stock indexes have 1,000 or more individual stock holdings.
Convenience and Fair Pricing
Mutual funds are simple to purchase and comprehend. They usually have minimal investment minimums and are only traded once a day at the closing net asset value (NAV). This removes day-to-day price fluctuations as well as different arbitrage possibilities used by day traders.
Tax-Efficiency
You can invest in ELSS mutual funds, which are tax-saving mutual funds that qualify for a tax deduction of up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act, 1961. Despite the fact that Long-Term Capital Gains (LTCG) over Rs 1 lakh are subject to a 10% tax, they have consistently outperformed other tax-saving products in recent years.
With each passing day, mutual funds are increasing in favour among investors. These days, a large number of Indians, particularly millennials, are expressing interest in mutual fund investing. The plethora of benefits that this smart investing tool provides to investors both during and after the investment term is one of the reasons for its popularity.
Although mutual funds provide a greater level of diversity and value for money, there are a few risks connected with investing in them. However, Investing in mutual funds may be a very profitable investment choice for individuals who plan and execute their investment plans properly and in accordance with their financial goals.
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First Published:14 Apr 2022, 11:13 AM IST
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