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Top 5 Benefits of Mutual Funds

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Publish Date: November 18th, 2019

By: Sandhya Kannan, Head – Content

Mutual funds are financial intermediary, set up with an objective to professionally manage the money pooled from various investors. Your money in funds is invested in securities like equity shares, bonds that generate returns which are then given back to investors.

The biggest advantage of investing in mutual fund is the power of compounding. Compounding is a long term investment strategy in mutual fund where you can earn interest on your principal amount. It also occurs when you re-invest your earnings. This benefit of mutual fund means re-investing your interest and receiving additional units.

Read more: How to Invest in Share Market - Beginners Guide

Listed below are the benefits of mutual funds to help you make an informed decision.

1. Diversification

One of the biggest benefits that you get in a mutual fund is diversification since a fund invests in multiple securities. With this, you tend to reduce your risk.

2. Professional Management

Another big benefit of mutual fund is professional management. Instead of you buying bonds or shares on your own, you outsource the task to an expert. With these professional experts, you can be assured that your money is invested in the right place.

3. Liquidity

You can easily retrieve money from a mutual fund. You can sell your units at any point also when the market is high. In open-ended mutual funds, the units can be sold when desired at the current NAV, whereas close-ended schemes are listed on a stock exchange where investors can redeem their units at the prevailing market price.

4. Tax Benefits

Mutual funds are tax-efficient than any other type of investments. So, long-term capital gain tax on equity mutual fund is zero, which means, if you sell your investment after one year of purchase, you don’t have to pay tax.

5. Affordability

If you are interested in buying shares of big companies in a particular sector then with mutual funds you can fulfill your wish to do so. It trades in big volumes and gives investors the advantage of low trading costs.

So, if you are looking at an investment option then these benefits of mutual funds will lead you to professional experts, diversification and also a good risk-return trade-off. When you do not have much time to study and research investments, mutual funds can best option to reap the benefits.

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