Advantages of Mutual Funds

Mutual funds are gaining popularity among the investors with every passing day. A huge number of people in India, including youth, are showing interest in mutual fund investments these days. The reason contributing to the popularity of this smart investment tool is the hoard of advantages that it offers to the investors during and after the investment period. Investing in mutual funds turns out to be a very lucrative investment option for investors who wisely plan and execute the investment strategies in sync with their investment objective. Even though mutual funds carry some associated risk, the risks can be easily mitigated by making smart investment decisions.

Mutual fund benefits to Know about before Investing

While you may be well aware of some of the common mutual fund benefits, there are a few lesser-known advantages that you mightn’t know about. It is pivotal to know all the benefits offered by mutual funds prior to investing in order to derive the maximum benefit from your investment. Here is the list of all the benefits that mutual funds offer to the investors:

  • Smart investment option
  • When you invest in an investment tool which invests in one specific sector there is a risk of losing money in one go. If the industry where you have invested fails, then you might lose all your money. However, this is not the case with mutual fund investments. When you invest in a mutual fund the associated risk is relatively low as most of the mutual fund schemes spread the investment in multiple assets and sectors for reducing the risk. Hence, if any one of the sectors faces a loss then the gains from the other sectors will compensate the amount that you have lost. This risk mitigation benefit makes mutual fund investments a smart investment option compared to other investments.

  • Low-cost investment
  • This is a very interesting feature of mutual funds. Since mutual funds get money from multiple investors, the asset management services provided by the company come at a comparatively low cost or charge since the amount is equally divided between all the investors.

  • Well-regulated funds
  • Mutual fund investments are regulated by the Securities and Exchange Board of India (SEBI). SEBI has laid down certain rules and regulations which all the mutual fund providers in the country have to follow. All the investments made in the funds have to be according to the SEBI guidelines. This ensures that the investment works in favour of both investors and providers without any unfair treatment. Being monitored and supervised by an authorised body like SEBI, the investments under mutual funds are safe and well-regulated.

  • Professionally managed
  • Investing in mutual funds is easy. These funds are professionally managed by expert and experienced fund managers who have extensive experience in managing funds. Hence, even beginners who don't have any knowledge about the market can invest in such funds with the help of expert managers. Since experienced professionals manage all activities related to these funds you can be assured that your money will be invested in safe places. Not only that, an entire team of experts will take care of your investment, design your portfolio, strategise on your behalf, and will guide you through every step of investment.

  • Multiple investment options
  • Investors get a variety of investment options while investing in a mutual fund. Not only can they choose funds as per their investment objective but they can also pick funds based on the amount of returns they want to derive. For instance, if you want to receive returns in a short period of time, you should ideally invest in short-term funds but when you have some future expenses to meet, investing in long-term funds will be ideal to serve your purpose. Mutual funds also offer the option of having a regular income flow throughout the tenure in the form of dividend payout facility. If your investment objective is to grow your capital throughout the investment tenure you can choose the growth option and for earning a regular income you have to go for the dividend facility.

  • Lump sum investment or in installments
  • Mutual fund investments offer investment options for people who don't have a large amount of money to invest at a go. Suppose you are very young or just don't have sufficient money to invest in mutual funds in one shot, in both the cases you can still invest in mutual funds by opting for the SIP investment option. A SIP is a Systematic Investment Plan which allows the investors to invest in mutual funds in installments (EMIs). When you invest in a SIP there will not be much pressure on your finances. Contrarily, if you have a large amount of money you can invest a lump sum amount.

  • Low investment requirement
  • Since mutual funds offer SIP investment facility, the investors can start investing in these funds with as little as Rs.500 every month. When you opt for the Systematic Investment Plan (SIP) under a scheme you don't have to invest thousands of rupees in the fund in one go. Instead, you can start your investment with a minimum of Rs.500 by opting for an SIP. Later, if you have a lump sum amount and feel the need to increase the invested amount you can invest more money in your fund.

  • Diversification of risk
  • Though mutual fund investments are subject to market risks, the advantage is that the associated risk can be diversified. It is completely up to the risk appetite of the investor to decide how much risk he/she is ready to take. While a high-risk fund tends to offer higher returns, the chances of loss in these are equally high. So, if you are not willing to take a huge risk you have the option to choose low or medium-risk funds. A medium-risk fund tends to balance the risk and give out a medium return and a low-risk fund has lower risks and gives the lowest returns. Thus, based on your risk-taking ability you can diversify the risk by choosing a suitable fund matching your requirement.

  • Growth-oriented investment
  • Since most of the mutual funds invest in the growth-oriented equity market, the investors get a chance to benefit from the growing Indian economy. Though investments in equity and equity-related securities of companies are prone to certain risks, the chances of generating returns from such funds are considerably higher. Moreover, such a fund invests in the stocks and bonds of high-grade companies the investors can do their individual research and then invest in the desired stocks on their own without any involvement of the intermediary.

  • Easy liquidity options
  • When making investments in mutual funds, an investor gets options for liquidity as well. Being an investor you will have the flexibility to choose between regular funds and tax-saving funds which are different from each other in terms of liquidity. While in a regular plan you can liquidate your income a few months after making the investment, in a tax-saver fund, the principal, as well as the dividend, can be withdrawn only after the completion of a 3-year lock-in period. As a result of the higher lock-in period in a tax-saver scheme, you can plan your future finances in a better way while generating high capital growth by the end of the investment tenure.

  • Ease of purchase and redemption
  • The units of a mutual fund scheme can be easily purchased and redeemed at the pertinent NAV prices on all the working days. Except for the mutual funds which are locked for a certain period of time, like ELSS, the units of the open-ended mutual funds can be purchased or redeemed on any of the business days unless specified otherwise by the fund house. Since there is no restriction on the liquidation of the units, the subscribers have easy access to their invested money.

  • Flexibility of switching funds
  • Mutual funds come with an option of fund switching. This means the investors can switch between schemes or between funds to avail better terms and/or better returns from their investment. However, in most of the cases, the fund switching option is available only between schemes of the same fund and not between the funds offered by a particular company.

  • Easy to track funds
  • It is not an easy task to regularly review the mutual fund investment portfolios as the fund units are purchased and liquidated by the subscribers on a regular basis. This is why the mutual fund companies provide clear statements of all investments thus making it easy for investors to keep a track of their investment. You can ask for the statement from the executives or can download it from the official website of the fund house that you have invested in.

  • Tax-saving advantages
  • A mutual fund investment also provides tax-saving benefits to investors. If you invest your money in mutual funds such as equity-linked savings schemes (ELSS) then you will be eligible to get tax-deduction benefits under Section 80C of the Income Tax Act, 1961. As per the Income Tax Act, a mutual fund investor is permitted to have tax deduction benefits up to the amount of Rs.1,5000. Hence, when you invest in such tax-saving schemes you will get the benefit of not paying income tax for the amount of money that you have invested in the mutual fund scheme. In this way, such investments will bring down your taxable income.

    So, these are some of the advantages of investing in mutual funds. Mutual funds are indeed better than other investment options since most of the benefits are exclusive and help the investors gain high returns with less risk. However, since mutual funds are subject to market risks, choose funds that are suitable according to your risk appetite and take guidance of the experts before investing.

News About Mutual Funds

  • Aditya Birla Mutual Fund will bring changes in the debt schemes

    As per a new circular of SEBI passed in October 2017, there will be changes in the attributes of various mutual fund schemes. This circular is passed with an intent to bring a standard in the scheme categories and the characteristics of each category. As per the new circular, there will be total 36 sub-categories within the main categories like debt schemes, equity schemes, hybrid schemes, solution-oriented schemes, and several others. It is launched in order to bring a uniformity in the attributes of the same type of funds in the mutual fund sector in India.

    Following the circular, Aditya Birla Mutual Fund Company has altered the attributes of some of its schemes like ABSL Cash Plus, ABSL Savings Fund, ABSL Banking and PSU Debt Fund, and others. The changes are mainly made in respect of the scheme types, investment goal, investment strategy, and asset allocation as per the regulation 18 (15A) of the SEBI Regulations regarding mutual funds, 1996. The customers of Aditya Birla MF who don't agree to the changes can either redeem or switch their units at applicable NAV without any exit load which will be valid from 2 May 2018 to 1 June 2018 up to 3.00 pm.

    18 June 2018

  • New KYC norms set up by fund houses

    According to the new norms set by Indian fund houses, an individual would not be able to buy mutual funds in case his Know Your Customer (KYC) is under process or on hold. This new rule has come into function from November, 01, 2015. Previously the fund house would process and allot the units even if this parameter wasn’t met. However, according to the new norm, only customers whose KYC has been verified will be able to transact. The KYC parameters include declaration of the gross annual income or net worth and is applicable to both existing and new customers.

    According to Harshad Chetanwala, head (customer delight) at Quantum Mutual Fund, fund houses processed requests of investors, until recently, if they had applied for KYC. In case the KYC was on hold, the concerned person was intimated about the reasons and asked to submit missing information or documents. As per the new guidelines issued by the Association of Mutual Funds in India (Amfi), this is rule has been changed. Investors, whose status is displayed as ‘on hold’, will have to submit the additional documents or get a new KYC done.

    6 November 2015

  • ICICI Bank branches in Canada and UK have equity investments halved.

    ICICI Bank has halved their equity investments in the Canada and the UK offices. The equity investments which was 11% in March 2010 is now 5.2% as of ending September 2015. The 2 overseas offices ICICI Bank Canada and ICICI Bank UK, have close to 25% of their Rs 4,09,700 crore assets. Canadian Subsidiary had their net profit fall down to 6.6 million Canadian dollar, while ICICI Bank UK was on the rise to $0.6 million, making their assets rise from $4.19 billion to $4.64 billion.

    3 November 2015

  • ICICI Prudential Mutual Fund launches Capital Protection Oriented Fund-Series IX-1103 Days Plan B

    ICICI Prudential Mutual Fund has launched the ICICI Prudential Capital Protection Oriented Fund-Series IX-1103 Days Plan B. A minimum subscription of Rs. 5000 is required to invest in this close-ended income scheme.

    The investment objective of the scheme is to protect capital. A portion of portfolio can be invested in the money market instruments and debt securities, which may mature on or before the scheme matures. The balance can be invested in equity and equity-related shares, thereby providing capital appreciation. The performance of this investment scheme will be benchmarked against CNX Nifty Index and Crisil Composite Bond Fund Index. The ratio will be 15% and 85% respectively.

    The duration of the subscription of the new funds will be from October 19, 2015 till November 02, 2015. There are no entry or exit load charges for this scheme.

    20 October 2015

  • IDFC Mutual Fund has a new fixed term plan

    A new fixed term plan has been launched by IDFC Mutual Fund called IDFC Fixed Term Plan Series-116(1097 Days). The new fund offer opens from 5th October 2015 and closes on 7th October 2015. The is a closed ended income scheme. Minimum subscription amount for this scheme is Rs. 10, 000. There will be no entry or exit load is applicable for this scheme. This fund will be benchmarked at Crisil Composite Bond Fund, and the fund manager for this scheme is Harshal Joshi. Investing in a portfolio of debt and money market instruments is the main objective of this scheme.

    7 October 2015

GST rate of 18% applicable for all financial services effective July 1, 2017.

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