What are the advantages of investing in Mutual Funds?

An investor education & awareness initiative.

You work hard, earn a regular income and save some money as well. But we’re sure you also want to build your wealth and achieve your financial goals. The right way to go about it is to invest your money in financial instruments so that your money can earn more money for you!

Let’s say you decide to invest in the stock market. There are hundreds of companies to choose from and buying stocks or shares of even one company requires a lot of research and thinking such as understanding the business of the company, its financial position, performance of the stock market, etc. That too, assuming that you can understand all the financial jargon as your lack of in-depth knowledge to make suitable investment decisions may hamper your decision making. To manage your risk, you will need to buy stocks of different companies and other types of securities to diversify within and across asset classes. You may find it difficult to manage your portfolio as you will need to track multiple companies, and other asset classes. Some investments may even need significant investment outlay, which you may find difficult to fulfill.

Therefore, you need investment vehicles that can help you in accessing the right combination of stocks and securities to diversify your portfolio, while also being easy to manage.

Mutual funds help the individual investor overcome all these issues and more. These investment products combine different instruments such as stocks, bonds or both into a single product. These products are researched and managed by specialists in asset management companies called fund managers and these fund managers in turn are supported by specialized research analysts. Being wholesale or large investors, mutual funds also reduce the cost of investing since fund managers are able to negotiate much lower collective transaction fees (brokerage), as against an investor buying multiple stocks individually.

Here are some significant advantages offered by mutual funds:

  • Simple and convenient, easy to buy and selll: Mutual funds are very simple products and are easy to invest your money in. Anyone can set up a mutual fund account online or through the traditional route using a broker, with minimum paperwork. You can then buy units online or even over the phone! This ability to buy and sell whenever you want, or the ability to sell your holdings whenever you need the money or switch products with ease, makes them a very desirable investment product.
  • Affordable investments: Investment in mutual funds does not require a large corpus. You can start with as little as Rs. 500. Once you start investing, you can increase your investment amounts gradually, as you gain more confidence or as your salary increases with time. Moreover, you have the option to either invest via lump sum or set up automatic investments, known as Systematic Investment Plans or SIPs - where a certain sum of money gets automatically invested at regular intervals (monthly, quarterly or semi - annually), from your bank into a mutual fund product of your choice.
  • Potential to earn handsome profits: Mutual funds are market linked instruments, even with a small investment, when the bull runs and the market soars, you can earn handsome profits. This also makes them a great instrument to help you deal with rising prices, or inflation. For example, when you buy an equity mutual funds, you are basically investing in stocks indirectly and with the rise in markets, you can benefit from the appreciation in the price of equities.
  • Potential to reduce your tax liability: You get a tax deduction if you invest in an Equity Linked Saving Schemes (ELSS) under section 80 C of the Income Tax Act of 1961. You can invest up to Rs 1,50,000 in an ELSS from your taxable income to reduce your tax liability.
  • Offers in built diversification and asset allocation: Mutual funds are diversified by their very nature and since they hold assets across sectors and companies, investors are not exposed to lopsided risks arising from investment in just one type of securities.
  • Professional, expert fund management: Mutual funds make it easy for you to manage your money as you get the services of skilled and experienced professionals who make investment decisions on the basis of strong research and continuous monitoring of investments. So when you invest in mutual funds, you can be at peace, knowing that the professionals are working hard to manage your money.
  • Well regulated: Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), which is an autonomous body created to protect the interests of capital market investors. All mutual funds are required to disclose critical information such as regular portfolio disclosures, expense ratio disclosures, daily price, holdings (on monthly basis), transaction records, commission policy and annual reports. This information is published periodically and allows investors to gauge where the fund is investing and what their strategy with regard to investments.
  • Access to high priced investments: Mutual funds also allow you to own high priced stocks that you may not be able to buy easily, especially if you’re just starting off or want to invest a small sum of money. This is because when you buy a mutual fund, you do not need to own stocks in full units, even fractional ownership becomes possible.
  • Reduced transaction cost: Investing in mutual fund helps reduce transaction cost. For example, if you had gone to a stock broker or an online platform to buy 20 different stocks, you would have to pay individual transaction costs for each of those 20 purchases, which will end up meaning more money lost, to you.

  • Reduced costs due to economies of scale: Buying a mutual fund that invests in the same 20 stocks helps negate this issue, because now these transaction costs get divided among all other investors in that fund, along with you. This benefit of economies of scale is yet another advantage of investing in mutual funds.

  • Offers liquidity: Mutual fund investments are highly liquid. They can be easily encashed within a short period of time (usually within two working days). Investors can thus liquidate their holdings whenever required.

So all you need to do is invest in mutual funds and relax. Let the experts work hard to make your money work harder and build wealth for you. With so many benefits, mutual funds are truly an all-in-one investment solution.

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Key Takeaways

  1. Mutual Funds are an all-in-one investment solution.

  2. They are an ideal investment option for investors because of the large number of benefits they offer.

  3. One can create a large portion of their investment portfolio using different types of mutual funds, as they help generate returns and manage risk at the same time.

Disclaimer: All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/redress complaints, visit This is an investor education & awareness initiative by DSP Mutual Fund.