Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Advantages and Benefits of investing in Mutual Funds in india

An investment fund carries few advantages or benefits like:

  1. Diversification
  2. Expert Management
  3. Liquidity
  4. Convenience of Investing – Mutual Funds are Easy to Buy
  5. Affordability or Flexibility to invest in Smaller Amounts
  6. Safety, Transparency & Ease of Comparison.
  7. Reinvestment of Income
  8. Systematic or One-time Investment
  9. Automated Payments System
  10. Best Tax Saving Option
  11. Lowest Lock-in Period
  12. Lower Tax on the Gains
  13. Legal Comfort
  14. Tax Efficiency
  15. Choice of Risk Position
  16. Investment Lot
  17. Cost Economies
Advantages and Benefits of investing in Mutual Funds in india
[Advantages and Benefits of investing in Mutual Funds in india]

1.   Diversification:

Mutual Fund helps investor to diversify their investment portfolio which in turn hedge the risk or lower the risk for their mutual fund investors like for one stock in mutual fund portfolio goes down then there are other is stocks or asset class we can compensate for the same.

2.   Expert Management

Second point is expert Management which I just talked about like Mutual Fund is managed by highly qualified and experienced professionals in the field of stock market which are they in their out 24/7 busy in researching and analysing and managing the investment instruments which they have invested in for the mutual fund investor, which is generally a very difficult task for a retail investor and does it gives a professional approach to investing buy these expert management team.

A novice investor may not have much knowledge or information on how and where to invest. The experts manage and operate mutual funds. The experts pool in money from investors and allocates this money in different securities thereby helping the investors incur a profit.

The expert keeps a watch on timely exit and entry and takes care of all the challenges. One only needs to invest and be least assured that rest will be taken care of by the experts who excel in this field.  This is one of the most important advantages of mutual funds

3.   Liquidity

Third point is liquidity which is one of the most important benefit for the retail investors because it gives the investor and ease of buying and selling mutual funds whenever they want to redeem, they can do it so liquidity is one of the most important advantages of mutual fund. Mutual funds are good if you want to invest in an easy to liquidate instrument. Investments can be redeemed within 1-3 working days.

4.   Convenience of Investing – Mutual Funds are Easy to Buy

Fourth point, Which we discuss here is a convenience of investing and these days investing in mutual fund has become a very easy task there are lots of apps and sites available for the mutual fund investors which provides a secure bank level security and a very user-friendly experience for the mutual fund investors to invest their money in mutual funds and these days there is lot of emphasis is been given on buying direct mutual fund which means that know the customers know the mutual fund investor the retail investor has to pay a very low price for their mutual fund investment which they have to pay for the direct plan in terms of expense ratios which will discuss further. And with the advent of these Commission free platforms, it has become a very easy job for a mutual fund investor who can start investing their money in just 5 minutes.

Mutual Funds are easily accessible and you can start investing and buy mutual funds from anywhere in the world. An asset management companies (AMC) offers the funds and distributes through channels like :

  • Brokerage Firms
  • Registrars like Karvy and CAMS
  • AMC’S Themselves
  • Online Mutual Fund Investment Platforms
  • Agents and Banks
See also  Statement of Additional Information (SAI) of Mutual Fund

and many more these are just few examples which I have given which are popular among mutual fund investors not a point to promote any one of them please don’t get me wrong yeah but these are one of the finest things which you can use to invest in mutual funds.

5.   Affordability or Flexibility to invest in Smaller Amounts

Fifth point, Is affordability, which gives power to a small investor to start their investment in stock market which is not even possible with this small amount even sum Mutual Fund allow investor to invest in mutual fund with just rupees hundred. So with this Mutual Fund becomes a very favourable investment option for a small investor who don’t have large saving but they can start investing is a small amount to buy starting SIP or a lump sum payment.

Investors need not put in a huge amount of money to invest in a Mutual Fund. If You draw a monthly salary then you can go for a Systematic Investment Plan (SIP). Through SIP a fixed amount is invested either monthly or quarterly as per your budget and convenience. You can start your Mutual Fund investment with as low as ₹500. With that money, you could own assets of many corporations, which otherwise is not possible with such small amounts.

6.   Safety, Transparency & Ease of Comparison.

And Sixth point, Safety with Transparency which I find myself is one of the most important benefits of investing in mutual fund because when I invest my money and put them into risk and ask someone else to manage my money then I was know what exactly happening with money where management is investing my money into to generate Returns and that’s what I really like about mutual fund because they give data of their investment in stock market and other securities in a very transparent manner and releases fact-sheet on monthly basis, which provides complete details of the current investment of the mutual fund in the stock market and other related securities. And not just that it also provides if there are changes done mutual fund portfolio too.

With the introduction of SEBI guidelines, all products of a Mutual Fund have been labeled. This means that all Mutual Fund schemes will have a color-coding. This helps an investor to ascertain the risk level of his investment, thus making the entire process of investment transparent and safe.

This color-coding uses  3 colors indicating different levels of risk-

  1. Blue indicates low risk
  2. Yellow indicates medium risk, and
  3. Brown indicates a high risk.

There is a general notion that mutual funds are not as safe as bank products. This is a myth as fund houses are strictly under the purview of statutory government bodies like SEBI and AMFI. Investors are also free to verify the credentials of the fund manager, his qualifications, years of experience, and AUM, solvency details of the fund house.

With lots of benefits, I don’t find any reason for a retail mutual fund investor not to invest in mutual fund, and find it as an ideal investment vehicle to reach their financial goals in long term or short term maybe.

And one More important point which would like to add further is flexibility, yes flexibility is the point which I find is very good for mutual fund investor because each investor is different in terms of their behaviour their investment style their choices their preferences and yes one more important thing is their ability to invest and thus, they have different financial goals. and the mutual fund provide complete flexibility to the mutual fund investors to invest according to them and to choose fund according to their choice and to redeem their capital gains according to their requirement and this is great.

See also  Types of Debt Mutual Funds

7. Reinvestment of Income:

Mutual funds allow investors to reinvest their dividends and interest in additional fund units. This helps in timely investment of your dividends and interest giving a compounding effect.

8. Systematic or One-time Investment:

You can plan your mutual fund investment as per your budget and convenience. For instance, starting a SIP (Systematic Investment Plan) on a monthly or quarterly basis in an equity fund suits investors with less money. On the other hand, if you have a surplus amount, go for a one-time lumpsum investment in debt funds.

9.   Automated Payments System

It is common to delay SIPs or postpone investments due to some reason. You can opt for paperless automation with your fund house or agent by submitting a SIP mandate, where you instruct your bank account to automatically deduct SIP amounts when it’s due. Timely email and SMS notifications make sure you stay on track with mutual fund investments.

10. Best Tax Saving Option

Mutual Funds provide the best tax saving options. ELSS Mutual Funds have a tax exemption of Rs. 1.5 lakh a year under section 80C of the Income Tax Act. You can use Scripbox’s income tax calculator to ensure tax plan requirement

All other Mutual Funds in India are taxed based on the type of investment and the tenure of investment.

ELSS Tax Saving Mutual Funds has the potential to deliver higher returns than other tax-saving instruments like PPF, NPS, and Tax Saving FDs.

11. Lowest Lock-in Period

Tax Saving Mutual Funds have the lowest lock-in periods of only 3 years. This is lower as compared to a maximum of 5 years for other tax saving options like FD, ULIPs, and PPF.

On top of that one has the option to stay invested even after the completion of the lock-in period.

12. Lower Tax on the Gains

With Equity linked saving scheme you can save tax up to Rs. 1.5 Lakh a year under section 80C of Income Tax (IT) Act. All other types of Mutual Funds are taxable depending on the type of fund and tenure.

Before making an investment one should keep in mind the various advantages Mutual Fund provides. Thorough knowledge of the benefits of Mutual Funds would lead to better gains in the future.

13. Legal Comfort

The legal structure, which is a source of comfort for investors because SEBI regulates the mutual fund sector in India. However, RBI, as regulator of banks, would need to authorize the commencement of mutual fund operations by a banking entity. Further, since it is the regulator of money supply in the economy, it has control over the money market and foreign exchange market. Measures that it announces for the money market and foreign exchange market could impact mutual fund operations. Besides such areas of overlap with other regulators, all regulation of mutual funds is by SEBI.

The guidelines applicable to mutual funds are set out in the SEBI (Mutual Funds) Regulations, 1996 (“the regulations”). SEBI has prescribed a legal structure with inbuilt checks and balances in the form of independent agencies for the various critical roles, namely trusteeship, asset management and custody of investments.

14. Tax Efficiency

In general, investors pay tax on a year-to-year basis. So if they were to earn and then re-invest any income, what they would re-invest is the amount that is available after paying tax.

Mutual fund schemes, on the other hand, do not pay any tax on their income. So, the same earning in a mutual fund scheme could facilitate a higher re-investment.

This differential tax treatment offers an opportunity to investors to multiply their money within a scheme, without paying tax in the interim. The incidence of taxation can be postponed until the investor needs the money — at which point of time the income can be structured as a long-term capital gain (through re-purchase, i.e. sale of units by the investor to the scheme), with the incidental tax efficiencies.

See also  Investment Styles of Mutual Fund

15. Choice of Risk Position

There are as many risk-level options among mutual fund schemes as the water level options in the milk sold by the unorganised milk sector in India! The choice of water level is entirely that of the buyer. The investor can either savour the water (risk) or drown in it!

Each mutual fund scheme promises a certain water (risk) level, and is expected to stick to it. Mutual fund schemes that do not stick to their promise are not worth investing in.

In the case of milk, the buyer would be happy with a water level that is lower than what was promised. However, with mutual funds, variation from promised risk level is unethical, irrespective of whether it is higher or lower than the promise. The trustees are responsible for ensuring that the AMC invests as per its committed investment objective, and maintains the promised risk character of the scheme.

16. Investment Lot

Direct investment in the securities market often comes with a stiff minimum investment requirement. This is particularly so in the Indian debt market, where realistic options for retail investors are only now emerging. On the other hand, mutual fund schemes give investors the option of investing as little as  5,000 with the added assurance of liquidity. Minimum investment is as low as  500 for some schemes. Obtaining wide exposure across a range of sectors and companies, through investment of such small amounts in a mutual fund scheme is a unique benefit that the industry offers.

17. Cost Economies

Given its size, an AMC would be in a position to negotiate better brokerage terms for the sales and purchases of its investments. No doubt the operating costs get loaded to its schemes, and thus charged to the scheme’s investors. But there are regulations on the extent of such loading. So long as the incremental returns through professional management and tax efficiencies are more than the costs charged to the schemes, investors gain by investing through mutual funds.

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