Mutual funds have become an increasingly popular investment vehicle for both new and seasoned investors. Their appeal lies in the numerous benefits they offer, making them a versatile and advantageous choice for growing wealth. Let’s delve into the many benefits of mutual funds, providing insights into why they are an excellent addition to any investment portfolio.
What are the Benefits of Mutual Funds?
Mutual funds are pooled investment vehicles managed by professional fund managers. These managers invest the collected funds in various securities, such as stocks, bonds, and other assets, aiming to generate returns for the investors. Let’s explore the benefits of MF in detail.
Diversification
One of the primary benefits of investing in mutual funds is diversification. By investing in a mutual fund, you gain exposure to a broad range of securities. Having investments in different securities ensures the impact from any one security underperforming doesn’t affect the overall portfolio.
Professional Management
Mutual funds are managed by experienced professionals who make informed decisions based on thorough research and market analysis. This professional management is one of the significant benefits of investing in MF.
Liquidity
Liquidity is another major advantage of mutual funds. Investors can easily buy or sell mutual fund units at the current net asset value (NAV), providing flexibility and quick access to their money. This liquidity ensures that you can convert your investments into cash without significant delays, which is especially beneficial in times of financial need.
Affordability
With relatively low minimum investment requirements, they are accessible to a wide range of investors, including those who may not have substantial capital to invest. This affordability allows individuals to start investing with modest amounts and gradually build their portfolios.
Tax Benefits
In many regions, including India, mutual funds offer tax benefits that make them an attractive investment option. For instance, Equity-Linked Savings Schemes (ELSS) provide tax deductions under Section 80C of the Income Tax Act in India. These tax benefits of mutual funds in India not only help in wealth creation but also in tax planning and savings.
Benefits of Regular Mutual Funds
Regular mutual funds provide the added benefit of systematic investment plans (SIPs). SIPs allow investors to invest a fixed amount regularly, promoting disciplined investing and rupee cost averaging. This method helps in reducing the impact of market volatility and ensures that investors do not need to time the market. To put it in perspective, if you start a SIP of Rs 10,000 today, and considering the average growth of Nifty 50, which is 12% per annum, within 30 years, your investment will be Rs 36 lakh, and it will grow to Rs 3.52 crores.
CALCULATE YOUR SIP WITH SIP CALCULATOR
| Year | Monthly investment | Amount Invested | Growth rate | Profit | Total Revenue |
| 1 | 10000 | 120000 | 12% | 8093 | 128093 |
| 2 | 10000 | 240000 | 12% | 32432 | 272432 |
| 3 | 10000 | 360000 | 12% | 75076 | 435076 |
| 4 | 10000 | 480000 | 12% | 138348 | 618348 |
| 5 | 10000 | 600000 | 12% | 224864 | 824864 |
| 6 | 10000 | 720000 | 12% | 337570 | 1057570 |
| 7 | 10000 | 840000 | 12% | 479790 | 1319790 |
| 8 | 10000 | 960000 | 12% | 655266 | 1615266 |
| 9 | 10000 | 1080000 | 12% | 868215 | 1948215 |
| 10 | 10000 | 1200000 | 12% | 1123391 | 2323391 |
| 11 | 10000 | 1320000 | 12% | 1426148 | 2746148 |
| 12 | 10000 | 1440000 | 12% | 1782522 | 3222522 |
| 13 | 10000 | 1560000 | 12% | 2199311 | 3759311 |
| 14 | 10000 | 1680000 | 12% | 2684180 | 4364180 |
| 15 | 10000 | 1800000 | 12% | 3245760 | 5045760 |
| 16 | 10000 | 1920000 | 12% | 3893782 | 5813782 |
| 17 | 10000 | 2040000 | 12% | 4639208 | 6679208 |
| 18 | 10000 | 2160000 | 12% | 5494392 | 7654392 |
| 19 | 10000 | 2280000 | 12% | 6473254 | 8753254 |
| 20 | 10000 | 2400000 | 12% | 7591479 | 9991479 |
| 21 | 10000 | 2520000 | 12% | 8866742 | 11386742 |
| 22 | 10000 | 2640000 | 12% | 10318959 | 12958959 |
| 23 | 10000 | 2760000 | 12% | 11970573 | 14730573 |
| 24 | 10000 | 2880000 | 12% | 13846872 | 16726872 |
| 25 | 10000 | 3000000 | 12% | 15976351 | 18976351 |
| 26 | 10000 | 3120000 | 12% | 18391120 | 21511120 |
| 27 | 10000 | 3240000 | 12% | 21127362 | 24367362 |
| 28 | 10000 | 3360000 | 12% | 24225847 | 27585847 |
| 29 | 10000 | 3480000 | 12% | 27732516 | 31212516 |
| 30 | 10000 | 3600000 | 12% | 31699138 | 35299138 |
Potential for Higher Returns
Mutual funds have the potential to deliver higher returns compared to traditional savings instruments like fixed deposits and savings accounts. By investing in a diversified portfolio managed by professionals, mutual funds can generate substantial returns over the long term, helping investors achieve their financial goals.
ALSO READ: MUTUAL FUNDS VS EQUITY
Transparency and Regulation
Mutual funds are highly regulated by financial authorities, ensuring transparency and protecting investors’ interests. Fund managers are required to provide regular updates and detailed information about the fund’s performance, holdings, and strategies. This transparency helps investors make informed decisions and trust the integrity of their investments.
Are Mutual Funds Worth it in India?
In India, mutual funds have gained popularity due to benefits of mutual funds and their potential for wealth creation and tax benefits. The diverse range of mutual fund schemes caters to different risk appetites and investment goals. Additionally, the regulatory framework ensures investor protection and promotes a healthy investment environment, making mutual funds a preferred choice for Indian investors.
Whether you are a novice investor or an experienced one, understanding the advantages of mutual funds can help you make informed investment decisions you can make this process smoother with some investment advise from SEBI registered advisory. They can help you with build a robust portfolio by considering stock intrinsic value and suggesting some debt mutual funds.
*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
FIND OUT WHY BILLIONAIRES DON’T INVEST IN MUTUAL FUNDS.
FAQ
Understanding the Benefits of Mutual Funds
What are the benefits of mutual funds?
The benefits of mutual funds are numerous, making them a popular choice for investors. Some key benefits include:
Diversification: Mutual funds invest in a variety of securities, spreading risk across different assets to reduce the impact of any single investment’s poor performance.
Professional Management: Managed by experienced professionals, mutual funds leverage expert knowledge and research to optimize investment decisions.
Liquidity: Investors can easily buy or sell mutual fund units at the current net asset value (NAV), providing flexibility and quick access to their money.
Accessibility and Affordability: With low minimum investment requirements, mutual funds are accessible to a wide range of investors, allowing them to start with modest amounts and build their portfolios over time.
Potential for Higher Returns: Compared to traditional savings instruments, mutual funds can offer higher returns through diversified and professionally managed portfolios.
Transparency and Regulation: Mutual funds are regulated by financial authorities, ensuring transparency and protecting investors’ interests through regular updates and detailed information about fund performance.Do mutual funds have tax benefits?
Yes,there are significant tax benefits of mutual funds, depending on the type of fund and the region. For instance, in India, certain mutual funds like Equity-Linked Savings Schemes (ELSS) provide tax deductions under Section 80C of the Income Tax Act. These schemes allow investors to reduce their taxable income by up to ₹1.5 lakh, making them an attractive option for both investment growth and tax savings. Additionally, long-term capital gains from equity mutual funds may be taxed at a lower rate compared to other forms of income, further enhancing their appeal.
Can government employees save tax with mutual funds?
Yes, government employees, like other investors, can save tax by investing in mutual funds, particularly through Equity-Linked Savings Schemes (ELSS) in India.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
