Benefits of Mutual Funds

Risk reduction via diversification

Mutual Funds allow an investor to diversify across securities. Since prices of securities move independent of each other, owning a wide set of securities via a mutual fund lowers investment risk.

Liquidity

Withdrawal request in equity and debt funds, if received before 3pm, gets processed the very same day, with money credited into your account, generally in about T+3 or T+4 days. Selling a thinly traded stock is difficult, but an investor can exit an MF even if the fund has the same scrip.

Transparency

MFs are governed by Securities & Exchange Board of India (SEBI). They are legally bound to disclose financial statements and fund performance details. You can check the latest fund related info, portfolio and return chart in the monthly disclosure document, known as factsheet.

Other Check Points

Prior to investing in Mutual Funds, you can review the risk factors and scheme related details from Scheme Information Document (SID). Plus, the fund manager’s background and AMC’s governance structure can be traced from Statement of Additional Information (SAI). AMCs are also required to disclose half yearly financial results on their website.

Professional Management

Professional fund managers with better access to research material & companies manage funds. The fund manager’s objective is to generate returns exceeding the benchmark (typically an index like the CNX Nifty).

Low Cost

An individual investor will incur cost in accessing information and conducting her own research before making the investment decision. A mutual fund spreads its cost over large volume of transactions thus lowering the cost for the individual investor.

Flexibility

An investor with a small sum to invest will not be able to diversify adequately. She can still enjoy the benefits of low risk via diversification in a mutual fund.

Growth or Dividend?

MFs come with two options – Dividend and Growth. Long-term investors can opt for growth option, which, as the name suggests, captures the growth in value of the NAV. While dividend option offers periodical gains, either in form of cash or as additional units.

Tax benefits

Annual investment up to Rs. 150,000 in ELSS schemes is eligible for deduction from annual income under section 80 C of the Income Tax Act.

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