Benefits of Investing through Mutual Funds

by Manshu on November 27, 2006

in Mutual Funds

Don’t be under the wrong notion that investment in mutual funds is a complex process and is not your cup of tea. It is rather an investment company that pools your money for the mutual benefits of those who invest in it. The benefits of mutual fund investment include:

Money Management by Professionals: One might have a capability, as an investor to take the right financial decisions but to make sound and effective investment decisions; a qualified and professional approach is a must. If one or more aspect is left out, it can result in failure or loss of investment so analytical guidance of a financial manager is must. Mutual fund is an answer to all the considerations of investment. Mutual funds allow an investor to entrust the investment decisions on the fund manager. It is then his responsibility to decide which securities to buy, when to buy and when to sell. They keep a close watch on the markets and invest and reinvest as and when needed. Their decisions and way to work are a result of experience and research skills in the field.

Low Investment and a good portfolio: A small investor generally takes all the investment decisions by himself. But mutual funds allow these investors to get the benefits of professional advice despite their low investment. Moreover, the portfolio gets richer by having proportionate share in securities one cannot think of buying individually.

Lower Transaction Cost: A mutual fund, on its merit as well as its high volume of its investments, can carry out buying and selling transactions in a more cost effective manner than an individual would do by himself. Moreover the time and effort invested towards the decision-making is also saved considerably.

Diversification: Mutual Funds put their funds in a various securities thus the resultant portfolio is diverse. This diversification reduces risk factor associated with owning a single security. An individual investor can never invest in such a pool of securities but Mutual Funds gives them an opportunity to do so. The Mutual Funds define a proportionate ownership in the complete portfolio of that particular fund. Thus the money gets invested across different categories and various asset classes.

Liquidity: Mutual Funds investment provides investors a simple entry into their investment. Open-ended mutual funds are very liquid; these funds buy back your shares at the prevailing market value on any day. These mutual fund redemptions are applied for via telephone or mail. Generally, the redemption amount is mailed in form of check to the investor on the successive business day following acceptance of the request.

Good Bargaining Capacity: Mutual Fund is a collective medium of investment. The investment of many people is pooled together thus the securities to be bought are bought in volumes. With ample amount of funds, the advantages in terms of bargaining capacity of funds increase.

Tax Benefits: Mutual Funds offer tax Benefits and are ideally suited for investors looking for tax concessions. These funds offer tax rebates to investors under section 88 of the Income Tax Act. Saving in Capital Gains under section 54EA and 54EB are also provided.

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