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Benefits of Mutual Fund Investments

“Don’t put all your eggs in one basket.”

How many of you have heard this in association with mutual funds? Well, Everyone!

That is because when investing in a mutual fund, you get to invest in shares, bonds and commodities of various companies. Diversity is one of the most apparent benefits of mutual funds. But is there anything beyond that earns mutual funds the tagline: “Mutual funds sahi hai”?

Let us take a look at some of the other benefits:

  1. Professional management: There are a plethora of financial instruments available in the market. Professionals skilled at analysing the shifts in the stock market and recognising industry trends manage these funds. It helps beginners and passive investors to invest in a well-managed fund regardless of their knowledge of the markets.

  2. Affordability: Identifying high performing stocks can be both, tough, and expensive. Mutual funds trade in large volumes and give their investors the benefit of lower trading costs. These funds also have a low entry cost. Investment through a Systematic Investment Plan is possible with amounts as low as Rs.100.

  3. Tax benefits: Dividends from mutual funds are tax-free. Capital appreciation is taxable depending on the asset class and investment duration. Equity Linked Savings Scheme (ELSS) investments can even help you save taxes up to Rs.1.5 Lakh annually from your income tax under section 80C.

  4. Well-regulated: All mutual funds need to comply and register with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India. Therefore, you never have to worry about these funds investing in NPAs or extremely volatile assets and can rest assured that your money is being invested in well established, recognised assets and asset classes.

  5. Flexibility: You can select funds depending on your investment objectives. Risk-taking ability and time horizon are two critical variables that reflect on your investment style. Also, some funds endorse a systematic investment plan while others  encourage a buy-and-hold strategy.

  6. Safety: Most funds invest in 50-200 companies to protect them against extreme market trends. The fund managers and the fund performance are scrutinised by the public and the regulatory authority. Moreover, SEBI and the appellate authority also provide a robust grievance redressal system for investors.

  7. Dividend reinvestment: Mutual funds allow reinvestment of dividends and interest without additional transaction costs. Compounding helps you grow the investment base at a faster rate than traditional modes of investment.

  8. Quick and easy process: You can choose to invest through an offline process or through websites. Investing in the right fund will ensure that your fund manager will not just maintain the benchmark but even exceed it.

Of all the investment instruments in the market, mutual funds clearly have an edge because of the right balance between risk and return. The cherry on the cake is that it can be customised to suit your financial goals.

Happy Investing!

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