Mutual Fund
A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
Since their creation, mutual funds have been a popular investment vehicle for investors. Their simplicity along with other attributes provide great benefit to investors with limited knowledge, time or money. To help you decide whether mutual funds are best for you and your situation, we are going to look at some reasons why you might want to consider investing in mutual funds.
Diversification
One rule of investing, for both large and small investors, is asset diversification.
Diversification involves the mixing of investments within a portfolio and is used to manage risk. To achieve a truly diversified portfolio, you may have to buy stocks with different
capitalizations from different industries and
bonds with varying
maturities from different issuers. By purchasing mutual funds, you are provided with the immediate benefit of instant diversification and
asset allocation without the large amounts of cash needed to create portfolios.
Divisibility
Many investors don't have the exact sums of money to buy round lots of securities. Investors can purchase mutual funds in smaller denominations, ranging from Rs1,000 minimums. Smaller
denominations of mutual funds provide mutual fund investors the ability to make periodic investments through
monthly purchase plans or Systematic Investment Plan while taking advantage of
Rupee-cost averaging.
Liquidity
Another advantage of mutual funds is the ability to get
in and out with relative ease. In general, you are able to sell your mutual funds in a short period of time without there being much difference between the sale price and the most
current market value. However, it is important to watch out for any fees associated with selling.
Professional Management
When you buy a mutual fund, you are also choosing a
professional money manager. This manager will use the money that you invest to buy and sell stocks that he or she has carefully researched. Therefore, rather than having to thoroughly research every investment before you decide to buy or sell,
you have a mutual fund's money manager to handle it for you.
Avail tax benefits
When the investment period in your equity mutual funds schemes cross one year in equity Mutual Fund, the capital gain received on it is exempted from tax liabilities, and 3 years for Debt oriented Mutual Fund. The Government of India also provides tax rebate for equity linked saving schemes (ELSS) under section 80C of Income Tax Act 1961. Investing into ELSS, gives you deductions up to INR 1,50,000 from your taxable income.
As with any investment, there are risks involved in buying mutual funds. These investment vehicles can experience market fluctuations and sometimes provide returns below the overall market.
