Advantages of Mutual Funds
Reduce Risk through Diversification
Investing a well-diversified mutual fund portfolio ensures that you have reduced your risk and exposure, protecting your investments from shock events or downturns to specific companies or industries.
It is easy to withdraw your funds should you need your money back immediately. If you have invested in fixed deposits, it isn’t always as easy to withdraw if there is an emergency.
Easy to Invest
You can start investing with as little as Rs. 500. Mutual funds are easy to start investing in, setup SIPs or one-time investments, and easy to track their performance.
Relative to the returns, mutual funds aren’t very expensive. Many actively managed funds can charge much more than a mutual fund, while usually providing similar returns.
Mutual funds are considered a great investment from a tax perspective. First, ELSS tax savings funds provide you with a tax exemption of up to Rs. 1,50,000. And if you hold your investment in an equity mutual fund for more than one year, you only pay 10% on the capital gains (much lower than the income tax rate). If you’ve invested in a debt fund, long term gains start after three years, but have the added benefit of indexation to help reduce your tax liabilities!
You Can Start Small
You can start with an investment of just Rs. 500 in a mutual fund, and as you grow more comfortable with investing, keep increasing that amount.
You can set up a SIP at the frequency of your choice, link a bank account, and automate your regular investments! So you’ll consistently grow your portfolio, save for your goals, without having to do much work.
If you want to set up SIPs or invest once a year, you can do that with mutual funds. You can specify the frequency of your SIP, or set up a SWP (withdrawal plan) that withdraws money at a defined frequency. Mutual funds are an extremely flexible form of investment.