A mutual fund is a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. For an individual investor to have a diversified portfolio is difficult. But you can approach to mutual fund advisor and can invest into shares. Mutual funds have become very popular since they make individual investors invest in equity and debt securities easy. When investors invest a particular amount of mutual funds, he becomes the unit holder of corresponding units. In turn, mutual funds invest unit holder’s money in stocks, bonds or other securities that earn interest or dividend. This money is distributed to unit holders 0
The reasons to invest in mutual funds are as follows:-
The first main reason according to us to invest in mutual funds is that it helps in diversifying your risk among different asset classes such as stocks, bonds, government securities etc. so that changes in one asset class in a downward direction can be balanced with another asset class whose price is going up, thus leading to minimizing the risk of an investor.
It is the best scheme for those who lack knowledge of the stock market as mutual funds are managed by asset management companies who have better knowledge of stock markets than us and can invest our money wisely. Also, starting a SIP nowadays or making an investment and tracking its performance can easily be done online by an investor.
3) Professionally Managed
They are managed by fund managers or asset management companies who have good knowledge of stock markets and therefore are in a better position to invest our funds wisely.
4) High Returns
Since mutual funds are managed asset management companies, they know how to identify winning stocks, when to buy and sell as their work is of analyzing the performance of various companies, thus ensuring that the investors can get the best returns out of their investments.
5) Disciplined Investing
When one starts a Systematic Investment Plan (SIP) in a mutual fund, he/she becomes committed to investing a certain amount every month for a specific number of years which inculcates a habit of disciplined investing in them and thus they are able to achieve their future goals more productively and in a timely manner.
It offers an option to the investor to invest their money in different asset classes such as equity, debt, bonds, government securities, gold etc. thus helping them in minimizing their risk.
7) Tax-Free Returns
One can get rid of tax payment in certain cases. For e.g.:- When your investments in equity mutual funds go beyond a holding period of 12 months, the returns become tax-free.
8) Audited Track Records
A mutual fund company maintains performance track records for each fund and also gets them audited for accuracy to ensure that investors can trust the fund stated returns. They also offer a prospectus for each fund as well as semiannual or annual reports which provides a lot of information to investors such as how the fund invests, amount of assets under management, internal fund expenses etc.
9) Initial investment is small
Many mutual funds can even let u start with a minimum amount of Rs.500 or Rs.1000 thus ensuring that every investor can invest in it and increase their returns.