7 benefits you get from investing in a mutual fund
BLURB: Mutual funds not only bring in better risk-adjusted returns but also cut costs.
Why bring in someone to do something for you when you can do it yourself – asks the common sense. If you can buy and sell shares, bonds and gold why involve a mutual fund? The simple answer is for the benefits the investments in mutual fund offer. Let’s dive straight into the pool of benefits:
Economies of scale
You know that the price you pay per banana changes if you buy one banana, a dozen of them or a truck full of them – thanks to economies of scale.
Similarly, as large number investors come together and pool in large sum of money, mutual funds offer economies of scale. If you try to access these services as an individual, the costs could be prohibitive.
Why do you engage a doctor for your health conditions or go to a car mechanic for your car’s maintenance? Because, you want experts to cater to your specific needs.
When you invest in a mutual fund, you can avail services of investment professionals. The best brains are at work to grow your money.
Have you been to a nice restaurant offering many mouth watering dishes? When you are alone, you can order one or two. But, think of a day when you go there with your friends and you can try ten such dishes when each one orders different dish.
If you buy even one stock each of all the constituents of the index, it will not only be cumbersome but you will also have to spend a big amount of money. But through a mutual fund, you own a well diversified portfolio of stocks even if you are investing a small sum as low as Rs 1000.
How is the idea of all of us wearing the same size and same colour shirts made up of same fabric? Sounds weird?
As all of us have different needs, we need different solutions. Mutual funds offer us a wide variety of investment options that invests across shares, bonds and gold. Right from liquid funds that make the best parking space for your money in short term to diversified equity funds which are great long term wealth creation machines. Choose one as per your needs.
You can invest lumpsum or you can opt for a systematic investment plan (SIP) - invest at regular interval – daily, weekly or monthly.
You can also choose to remain invested for a day or for your lifetime. Start with Rs 5 crore or Rs 500. You get to decide if you want to walk or run towards your goals.
This can be the deciding factor, though not many investors really care about it. Have you come across anyone telling you that he is in dire need of money and can’t sell any of his properties at the right price? That is liquidity – quickly selling your investments at the right value and getting your money back when the need arises.
Mutual fund offers you the opportunity to sell your investments at fair value as per the scheme’s rules. No questions asked.
Mutual funds fetch you tax benefits – when you invest in an ELSS (Equity linked savings scheme), you can save tax of up to Rs 1.5 lac of your income every financial year*. To further sweeten the deal the capital gains enjoyed on the mutual fund investments get much lenient tax treatment as compared to interest income.
Transparency & regulation
Where would you like to store your gold? In an electronic safe kept in a high security area or in a place where robbers prevail?
Most of us would like it to be in a regulated environment. Securities Exchange Board of India (SEBI) that regulates mutual funds prescribes best practices and has put in place a regulatory framework that nurtures investors’ interests.
Mutual funds declare the value of the investments of each scheme – net asset value per unit every day. Mutual funds have to periodically share the portfolios of the schemes. Mutual funds are also expected to share key information about the scheme such as investment objective, investment policy and past record with investors at regular interval.
Put it straight the regulator ensures that you remain in charge of your investments and take more informed decisions.
Mutual funds make the investments a convenient and simple. You can generate wealth and achieve your financial goals without compromising your leisure time and peace of mind.
* Under Section 80C of Income Tax Act 1961