BENEFITS OF MUTUAL FUNDS

Professional Management

A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective.

Diversifying Risk

Mutual funds can provide investors the advantage of diversifying their portfolios, though, as they sometimes include hundreds of different stocks

Variety of Investment

There is no shortage of variety when investing in mutual funds. There are funds that focus on blue-chip stocks, technology stocks, bonds or a mix of stocks and bonds and with due assistance from a financial expert.

WHY MUTUAL FUNDS?

The market capitalization of mutual funds, which typically invest in a variety of assets, changes over time to reflect the success of the underlying investments, which in turn determines the market capitalization of the fund.

For small or individual investors, mutual funds might be an excellent way to have access to a professionally managed investment portfolio.

Mutual funds can provide investors the advantage of diversifying their portfolios, though, as they sometimes include hundreds of different stocks.

The net asset value per share, or NAV, is the price of a share of a mutual fund.

  1. Professional Management: The main benefit of investing in mutual is that they are run by competent professionals who are supported by a committed investment research team that evaluates the performance and future prospects of businesses and chooses appropriate assets.
  2. Portfolio Diversification: Since one of the core principles of investing is to diversify portfolios, using a mutual fund can be an easy and effective approach to achieve this objective. They make investments in a variety of businesses in a wide range of sectors and industries. Because not all equities lose money along the way but in the same amount, diversification lowers risk.
  3. Convenient Administration: Mutual funds lowers paperwork and helps you avoid several issues, including faulty deliveries, late payments, and pointless follow-up with brokers and businesses. With mutual funds, investment is quick, simple, and convenient.
  4. Return Potential: As they invest in a diverse portfolio of well chosen securities, mutual funds do have potential to offer a better return over the medium to long term.
  5. Low Expenses: Considering the costs, mutual funds are one of greatest investing solutions. When compared to investing directly in the capital markets, they are more affordable because of the advantages of scale in terms of brokerage, custodial, and other expenses.
  6. Liquidity: In open-ended plans, you can withdraw your money at net asset value-related prices from the mutual fund itself, with the exception of equity-linked savings schemes, which have a three-year lock-in period. Close-ended schemes allow you to sell your units on a stock exchange at the current market price or take advantage of the capability of direct buyback at NAV-related prices, which certain close-ended and interval schemes provide on a regular basis.
  7. Transparency: You get frequent information on the value of your investment in the form of account statements, as well as transparency on the investments made by your plan in the format of portfolio disclosures, which reveal the proportion invested in each asset class. The documents associated with the Scheme also specify the investment strategy and asset allocation.

An investor commits to invest a specific amount for a continuous period at regular intervals, this ensures that he gets more units when prices are lower and fewer units when prices are high, this works on the principle of rupee cost averaging when invested at different levels and automatically participate in the swing of the market.

Power of Compounding, To avail the benefit of power of compounding one has to start early and invest regularly, a delayed investment will lead to greater financial burden to meet the required goals, at early stage a less investment needed where as more investment is needed at a later stage to accumulate the same planned corpus.    

Growth Option
In this option, the scheme does not pay any dividend but continues to grow. The gains are invested back into the scheme and this is seen in rise of the NAV.

Dividend Payout Option
This option is suitable for Investors requiring Regular Income. This option will give the investor the benefit of moderate capital appreciation along with dividend returns over the period of holding.

Dividend Reinvestment Option
In this option, the dividend is not paid to the investor, instead it is reinvested in the fund scheme by purchasing more units on investor’s behalf.

Money Market Funds/ Liquid Funds
These Funds invest only in Money Market instruments making it generally most secure which aims at preserving the capital and giving decent return. These funds invest in Bank Certificates of Deposits, Commercial Paper, Repurchase Agreements and Bank Time Deposits

Debt Mutual Funds, Bond/ Income Funds
Income Funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to Mutual Funds, the terms “Fixed-Income,” “Bond,” and “Income” are synonymous and are a mix of Bonds, Corporate Debentures and Government Securities. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady appreciation/ regular cash flow to investors.

Fixed Maturity Plans (FMPs)
These are closed ended Debt Funds that invest in Debt instruments with maturities either less than or equal to maturity of the scheme. These are best suited to the conservative investors as they don’t carry interest rate risk and generally offer higher post tax returns than FDs.

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