A report suggests that the Assets Under Management (AUM) of the Indian Mutual Fund Industry stood at INR 66,93,032 crore on December 31, 2024. In the last decade, between 2014 to 2024, there has been a 6 fold increase in the industry’s growth. The number demonstrates the popularity of mutual funds among investors, which also indicates various investment perks.
Mutual funds pool the money invested by inventors and invest the amounts in various financial securities, including equity and debt. Investors who invest in mutual funds own shares or units and receive returns accordingly. AMC or asset management companies manage these funds. All mutual funds have dedicated fund managers to meet the investment goal. Join us as we explore the benefits of investing in mutual funds with the aim of long-term goals.
Mutual Fund Benefits: Why You Should Invest in Mutual Funds
Following are the many benefits that encourage investors to invest in mutual funds:
Professional Fund Management
Stock and bond investments often demand extensive time, expertise, research, and the monitoring of individual stocks or bonds. Invest in mutual funds, and you will be provided with the same investment benefits without the work. They are handled by professionals who are employed full-time to buy, sell, and monitor investments to meet the purposes of the scheme. Fund managers continuously review and rebalance the portfolio to optimize performance. Professional management is a big advantage in mutual funds.
Risk Diversification
Investors receive the opportunity to diversify investments into various classes of securities and assets when they start investing in mutual funds. The risk factor can be diversified because the adverse performance of one asset can be balanced by others and will not negatively affect the entire portfolio. If an asset performs below expectation, a profit from other investments can help mitigate the loss. Diversification minimises the risk of losing your money when you invest in mutual funds.
Smaller Capital Outlay
Building a well-diversified investment portfolio can be an expensive investment. Not every investor may be financially equipped for that. Mutual funds provide the same benefit at a smaller investment amount. Mutual fund investment starts at considerably low prices. With this investment tool, you can have a diversified portfolio without spending a fortune.
Affordability & Convenience
Directly purchasing a diversified portfolio of securities may turn out to be a more expensive option for an individual investor. Mutual funds provide a more affordable alternative with relatively low minimum investment requirements available to a wide range of investors. It further adds to the convenience of investing in a diversified portfolio.
Liquidity
Liquidity is a crucial factor for many investors for the obvious reason of easy accessibility to their capital. Open-ended mutual funds allow easy access to your money. Investors can redeem their units on any business day, and the proceeds are credited to the bank account within 1 to 4 days, depending on the scheme. For example, Overnight Funds and Liquid Funds are redeemed the next business day. Keep in mind that close-ended schemes can only be redeemed upon maturity, while ELSS funds have a 3-year lock-in period.
Low Cost
The expense ratio of mutual funds is low thanks to economies of scale. The ratio is basically the annual operating cost of the mutual funds, which includes administration, management, advertising-related expenses, and so on. SEBI Mutual Fund Regulations of 1996, Regulation 52 to be more specific, have specified the expense ratio of different schemes to ensure transparency and cost efficiency.
Well-Regulated
Securities and Exchange Board of India (SEBI) regulates mutual funds under the SEBI Mutual Fund Regulations of 1966. Rigid rules and regulations are in place to protect the investors, maintain transparency, create a suitable framework for risk mitigation, and ensure fair valuation principles. The market is informed, and the investors have easy access to all the information they require. When you invest in mutual funds, you will be investing in a reliably well-regulated avenue.
Tax Benefits
A considerable amount of return on investment can go into tax. Interest earned on investments is often tagged as income from other sources under the Income Tax Act of India and taxed accordingly. Naturally, many investors look for tax-saving mechanisms and legitimate strategies to reduce tax burden. Certain mutual funds can offer tax benefits. For instance, tax benefits can be availed on ELSS investments up to INR 1,50,000 under the Income Tax Act of 1961 (section 80C). When investors invest in mutual funds, they can prove to be tax-efficient for the longer term.
In a Nutshell
Mutual funds are among the most attractive investments in the Indian market for many reasons. With both active and passive funds in the play, investors have various options to select from, allowing them to invest in proper alignment with their financial goals. You can now invest in mutual funds in quick and easy steps, further adding convenience to their long list of benefits.