Why should you invest in mutual funds?

Before figuring out how to invest in mutual funds, you should know why invest in mutual funds.

Risk Diversification:

Mutual funds investing helps diversify risk. Each fund scheme invests in an array of stocks or bonds from various sectors/issuers. This helps reduce risk which usually comes from investing only one stock or bond.

Professional management:

Since mutual funds are managed by professional fund managers who, assisted by research team for stock selection and managing the scheme portfolio, aim is to ensure that scheme investment objectives are met.

Modes of investment:

You can invest in lump sum or through Systematic Investment Plans (SIPs) or Systematic Transfer Plan (STPs) depending upon your specific financial situation, risk appetite and needs.

Tax benefits:

· Mutual funds are tax efficient investment solutions. · Equity funds are taxed at 15% on short term capital gains (held for less than 12 months and long-term capital gains (held for more than 12 months) are tax exempt up to Rs 1 lakh in a FY and taxed at 10% thereafter (excess of Rs 1 lakh of capital gains).

Tax benefits:

· Non-equity funds are taxed at as per your income tax rate on short term capital gains (held for less than 36 months) and long-term capital gains (held for more than 36 months) are taxed at 20% after allowing indexation benefits. · To avail Section 80C tax benefit, you can invest in ELSS mutual funds.


Open ended mutual funds are one of the most liquid investments after bank deposits,  life insurance plans, infrastructure bonds, post office schemes etc. Investors can redeem their units in open ended funds usually on a on T+3 (transaction + 3 days) basis. Liquid, overnight, low duration and ultra-short funds can usually be redeemed on T+1 day.

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