Advantage of mutual funds

Whether you are a seasoned or first-time investor; a mutual fund is something you should
seriously consider adding to your investment portfolio. However, you should be aware of the
advantages as well as possible pitfalls of this investment.1

Portfolio Diversification:

Since one of the primary rules of investment is to diversify portfolios, a mutual fund
can be simple and successful way to accomplish this goal. They invest in a number of
companies across a broad cross-section of industries and sectors. This diversification
reduces the risk because seldom do all stocks make losses at the same and in the same
proportion.

Professional Management:

A lot of investors do not have the time or resources to conduct their research and
purchase individual stocks. This is where professional management becomes quite
useful. Several people invest in mutual funds for the professional expertise it provides
to one’s investments. A fund manage continuously monitors investment and adjusts
the portfolio according to meet its objectives. This professional management is one of
the most important advantages of a mutual fund.

Tax – efficiency:

You can invest in tax – saving mutual funds called ELSS which qualifies for tax
deduction up to Rs 1.5 lakh per annum under section 80C of the Income Tax Act,
1961. Though a 10% tax on long term Capital Gains (LTCG) above Rs 1 lakh is
applicable, they have consistently delivered higher returns than other tax – saving
instruments in recent years.

Higher Return on Investment (ROI):

All investors aim to achieve a higher ROI by investing in financial Instruments such
as mutual funds to beat inflation and increase their wealth of the long – term. Mutual
funds have greater prospects of potentially providing high returns over time as one
can invest in a diverse range of sectors and industries.

1
https://cleartax.in/s/advantages-disadvantages-mutual-funds
Well – regulated:

All mutual funds are regulated by the capital markets watchdog Securities and
Exchanges Board of India (SEBI). This means that all mutual fund houses are
required to follow the various mandates as laid down by SEBI. This, in turn protects
the interests of the investors. Moreover, SEBI makes it mandatory for all mutual
funds to disclose their portfolios every month.

Easy Investment:

It is very easy to invest in mutual funds, i.e., you can do this either online or offline.
You simply need to visit your Asset Management Company’s (AMC) website and
submit the necessary documents to start on your investment journey. Moreover, you
can also visit your AMC in person and sign the physical documents to get started. The
ease of investment makes mutual funds are preferable avenue.

Transparency:

You get regular information on the value of your investment through account
statement and in addition to disclosure on the investments made by your scheme
through portfolios disclosures, which indicates the proportion invested in each class of
assets. The Scheme related documents also specify the investment strategy and asset
allocation for each scheme.