7 Advantages of Mutual Fund Investment For Beginners

Mutual fund plans are straightforward investment vehicles that let even novice investors select from a variety of options to invest and build wealth and enjoy good returns. But, since there isn’t one investment strategy that works for everyone, the earlier you start, the better you’ll understand how to manage your money.

Here are a few advantages to knowing more about it:

1. Diversification of Funds Invested

Have you been to a wonderful restaurant that offers a wide variety of delectable dishes? But no matter how expensive it is, you will order one or two dishes when you’re by yourself, won’t you? Okay, five dishes! However, imagine a day when you visit that restaurant with 20 friends. You can sample at least 20 dishes (that is, if all your friends are generous enough to share a bite) because everyone is ordering a different dish! The more, the merrier, isn’t it? 

Similarly, it would be difficult and expensive to purchase even one stock from each of the stocks on the market no matter how lucrative they seem, not to mention the time-consuming process of selecting and buying them. But if you invest as little as Rs. 500 or Rs. 1000 in a mutual fund, you can possess a well-diversified portfolio of stocks (and here, nobody will refuse to share, unlike your friends at a restaurant!).

2. The Benefits of Scale

You know that the price you pay per apple varies depending on how many apples you purchase—one, a dozen, or a truckload. That’s because of the economies of scale (saving costs by increasing production levels). Similarly, given the huge numbers of investors who combine their money in mutual funds, the economies of scale begin to affect the outcome of a per-share price. If you try to use these services on your own, the charges could be too high.

3. Liquidity 

Even though few investors truly care about it, liquidity can be the decisive factor for investment. Have you heard someone say that they are in desperate need of cash and are unable to sell any of their possessions (house, car, bonds, etc.) at a suitable price? That is liquidity—quickly being able to convert your holdings (assets) into cash at the correct price and recouping your investment when necessary. According to the terms of most mutual funds programmes, mutual funds give you the option to sell your investments at fair market value. There are no questions asked. 

4. Handled by Professionals

Why do you consult a doctor about your health issues or take your automobile to a mechanic for routine maintenance? Because you want professionals to tend to your particular needs. Similarly, the services of investment professionals are available to you when you invest in a mutual fund. The brightest minds are working to increase your wealth.

5. Tax Benefits

You can save up to Rs. 1.5 lakh in taxes annually by investing in an Equity Linked Savings Scheme (ELSS) because of the tax benefits that mutual funds provide. The capital gains earned from mutual fund investments receive far more favourable tax treatment than interest income, which further sweetens the deal.

6. Wide Range of Investments

What do you think of the idea of everyone donning identically-sized shirts? Sounds strange, right? Similarly, we all require different solutions because our needs are unique. Through mutual funds, we have access to a wide range of investment opportunities, including shares, bonds and gold. 

From liquid funds, which provide the best short-term parking for your money, to diversified equity funds, which are fantastic long-term wealth growth tools, depending on your needs, you can pick one. You can also choose to invest all at once or choose a systematic investment plan (SIP), which invests over time at regular intervals like daily, weekly, or monthly. Additionally, you have the option of investing for a single day or your entire life and can start with Rs. 500 or Rs. 5 crores! In short, you choose whether you want to run or walk to achieve your objectives.

7. Transparency

Where would you prefer to park your gold? In a location where robberies are expected or in an electronic safe housed in a high-security area?  Most people would prefer it to be stored in a controlled setting. The Securities Exchange Board of India (SEBI), which oversees mutual funds, establishes best practices and a legal framework that promotes the interests of investors.

Every day, mutual funds publish their net asset value (NAV) per unit, which represents the value of their interests in each plan. This is because mutual funds are required to share the schemes’ portfolios regularly, by law.  Moreover, mutual fund houses are also obligated to communicate with investors frequently about important scheme details such as the investment objective, investment strategy, and track record.