A mutual fund is a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.
Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.
Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.
Benefits of Mutual Fund:
- Reduced Risk, Optimum Returns: By nature, a mutual fund is multiple investment opportunities bundled into one. Normally returns on investment from a single security depend on how well or how poorly the company fares. But with mutual funds your money is invested across different companies or sectors. By doing this your investment returns get averaged. This means, even if two investments go bad other investments may average your returns.
- You can have money when you want it : If you invest in an open-ended mutual fund, you can claim your money at net asset value (NAV) related prices from the mutual fund itself on any business day. On the other hand, if you invest in a close-ended scheme, you can sell your units at the prevailing market rate on the stock exchange if it is listed. But if the scheme not listed, in order to provide an exit route to the investors, some close-ended fund give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.
- It is an affordable investment option: Since you invest with several other investors, you bear lesser investing cost than you would have jt if you did it alone. So, as compared to investing directly in the capital market, mutual fund cost less and the investment size is also as minimum as Rs.500/- .
- The complete process is transparent: Unlike some investments like property, you get to know the value of your investment on a daily basis. In addition to it, you can also know the investments that have been made by your scheme, the proportion allocated to different assets and the Fund Manager’s investment strategy on a periodic basis.
- Returns from mutual funds are tax-free: Currently, earnings from equity mutual fund in the form of dividends are tax-free. Also income generated from investments in an equity scheme for more than a year is tax-free. (if there is no long-term capital gain.)
- It is regulated by SEBI: All mutual funds are registered with Securities and Exchange Board of India (SEBI) and function within the provisions and regulations that protect the interest of investors. SEBI not only regulates the working of stock exchanges and their intermediaries but also prohibits fraudulent and unfair trade practices relating to securities markets and insider trading in securities, with the imposition of monetary penalties o erring market intermediaries.