With the growing awareness towards investments, Mutual Funds have emerged as a highly popular investment option among investors in India replicating what has been witnessed across the globe. Mutual Funds score over other asset classes given the advantages of convenience & cost-effectiveness which at the same time strives to attain the objectives of capital appreciation/protection & income generation
A mutual fund pools the money of various investors having common objective with a view to invest in various securities. Mutual funds may invest in variety of instruments like stocks, bonds, money market securities, gold, REITS/INVIT (Real Estate Investment Trusts/Infrastructure Investment Trusts) or a combination of these which provides diversification to your investments. These schemes are professionally managed on behalf of the investors to help them attain their financial goals.
Benefits of Mutual Fund : Investor Safety:
Registration of Mutual Funds with SEBI is mandatory. With investor interest at the helm, SEBI has laid down strict regulations to safeguard investors against possible frauds, and every company issuing or dealing in Mutual Funds must abide by them.
Professional Financial Experts
Every Mutual Fund scheme has a well-defined objective. And behind every scheme, there is a dedicated team of financial experts working in tandem with specialized investment research team. These experts diligently and judiciously study companies, their products and performance, and after thorough analysis, they decide on the best investment option most aptly suited to achieve the scheme’s objective as well as investor’s financial goals.
Mutual Funds diversify the risks of investment by investing in variety of companies/Businesses across different industries and sectors. Market volatility seldom affects all sectors at once, and hence, the investor is saved from incurring heavy losses.
Rate of Return:
The return potential of medium to long term Mutual Funds multiplies manifold, resulting in greater gains for investors in the long-term.
Pooling of large sum of money from many investors makes it possible for the mutual fund to engage professional managers for managing investments. Individual investors with small amounts to invest cannot, by themselves, afford to engage such professional management.
Large investment corpus leads to various other economies of scale. For instance, costs related to investment research and office space gets spread across investors. Further, the higher transaction volume makes it possible to negotiate better terms with brokers, bankers and other service providers.
Mutual funds give the flexibility to an investor to organize their investments according to their convenience. Direct investments may require a much higher investment amount than what many investors may be able to invest. For example, investment in gold and real estate require a large outlay. Similarly, an effectively diversified equity portfolio may require a large outlay. Mutual funds offer the same benefits at a much lower investment value since it pools small investments by multiple investors to create a large fund.
Similarly, the dividend and growth options of mutual funds allow investors to plan pay out of gains from the fund that suits their funds requirement.
Thus, investing through mutual fund offers a distinct economic advantage to an investor as compared to direct investing in terms of cost saving and expertise.
Benefit of Liquidity:
Investors can encash his/her investments in Mutual Funds, partially or wholly, at a prevailing net asset value (NAV), at any point of time. For Closed ended schemes, investors can encash their investments at prevailing Nav, subject to exit load at specific intervals, if provided in the scheme. In certain schemes, where the money can be recovered from the mutual fund only on closure of the scheme, are compulsorily listed on a stock exchange. In such schemes, the investor can sell the units through the stock exchange platform to recover the prevailing value of the investment.
Mutual Funds are the most transparent form of investment. Investors will receive detailed information and timely updates about the nature of investments made, fund manager’s investment strategy, process, the exact amount invested in each type of security, etc.
Mutual Funds facilitate easy and disciplined investment as well as ensure easy withdrawal of funds as per investor’s convenience.
Choice of Investment:
There are different types of Mutual Funds across varied category/sectors/themes, and with due assistance from a financial expert, the investor can choose a scheme that aptly suits his/her requirements and helps him achieve goals.
Ways to invest in Mutual Funds
- Lumpsum Investments: Lumpsum investments are those investments which are made in a single tranche. For example, investment in liquid fund, investment /switch from liquid to equity or debt funds in one tranche, important factor being entire investment is made one or maximum two tranches.
- SIP: SIP(systematic investment plan) are investing option which are made by the investors at pre-defined frequencies, for example, , daily,monthly, Quarterly. SIP works on the concept of rupee cost averaging. SIPs are the best tools in controlling emotions, maintaining discipline and navigating volatility in markets.
- STP: STP (Systematic Transfer Plan) are pre-defined frequencies of transferring amount from one asset class (Liquid, Equity, Debt) to another.
Ways to Redeem from Mutual Funds
- Redemption: In case of full/part redemption, investor can exit from his/her mutual fund investment at one go or in parts. Exit load/taxes will be applicable depending upon holding period.
- SWP: In case of Systematic withdrawal plan (SWP), investments can be withdrawn at pre-defined amount and frequencies from the respective mutual fund schemes (Liquid, Equity, Debt) to his/her bank.