Mutual funds offer several advantages to investors
Almost everyone can buy mutual funds. Mutual Funds generally provide a opportunity to invest with less funds as compared to other avenues in the capital market. Even the ancillary fee which one has to pay in the form of brokerages, custodian etc is lower than other options and is directly linked to the performance of the scheme.
For an average investor, it may be quite difficult to decide what to buy, when to buy, how much to buy and when to sell. Mutual Funds have a skilled professionals who have years of experience to manages your money. The fund manager takes these decisions after doing adequate research on the economy, industries and companies, before buying stocks or bonds. They use intensive research techniques to analyze each investment option for the potential of returns.
Investments are less risky as it is spread across a wide cross-section of industries and sectors. Diversification reduces the risk because all stocks generally don’t move in the same direction at the same time. A mutual fund is able to diversify more easily than an average investor across several companies.
You can afford to withdraw your money from a mutual fund on immediate basis when compared with other forms of savings like the public provident fund or National Savings Scheme. You can withdraw or redeem money at the Net Asset Value related prices in the open-end schemes. In closed-end schemes, the units can be transacted at the prevailing market price on a stock exchange.
Mutual funds have historically been more efficient from the tax point of view. A debt fund pays a dividend distribution tax of 12.5 per cent before distributing dividend to an individual investor or an HUF, whereas it is 20 per cent for all other entities. There is no dividend tax on dividends from an equity fund for individual investor.
Potential of returns:
Mutual funds generally offer better than any other option over a given period of time. Though they are affected by the interest rate risk in general, the returns generated are more.
The Mutual Fund industry is very well regulated. All investments have to be accounted for. SEBI acts as a true watchdog in this case and can impose penalties on the AMCs at fault. The regulations are also designed to protect the investors’ interests are also implemented effectively.
As they are under a regulatory framework, they have to disclose their holdings, investment pattern and all the information that can be considered as material, before all investors to ensure transparency which is unlike any other investment option in India where the investor knows nothing as nothing is disclosed
Categories: Mutual Funds
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