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Introduction to Mutual Fund and its Benefits

Benefits of Mutual Funds

Mutual Funds comprise of a diversified portfolio of stocks and money instruments. Mutual fund portfolio can be made of equity, debt, bonds and other money instruments. Mutual fund portfolios are managed by qualified fund managers and their teams who are responsible for the performance of the portfolio.

Mutual fund investments can be beneficial for the investors in several ways. The prime mutual fund benefits include:

Investment Opportunities: Busy people often don’t get time to follow the volatile stock market trends and invest wisely. People start investing with limited amounts which may not be sufficient to buy enough units of a particular stock. Moreover common investors do not have sufficient insight to invest gainfully. Mutual fund benefits offer investors a wise avenue of investing in stock market instruments. The fund portfolios are managed by finance veterans who can easily feel the market pulse and devise maximum gains as well as minimize the risks.

Managed and Diversified Risks: The mutual fund portfolio comprises of fund picks by fund managers. Fund managers decide which stocks to purchase and in what quantities. Hence mutual fund benefits also include the gains of a managed fund. Fund managers manage the fund portfolio by applying the standard volatility and risk mitigation test ratios. These include the test for standard deviation, tests for alpha and beta and other checks. Financial technology has made the application of complex financial test models swift. With Fintech at their disposal financial managers quickly grasp the market pulse and craft out the best portfolios.

Low Investment Options: Among the prime mutual fund benefits is the feature that it is possible to invest in mutual funds with small savings which can be as little as Rs 500 a month. The Rs 100 SIP has also been introduced and now mutual fund investments can be started with just Rs 100.

Short Lock in Periods: Most savings investment plans have a lock in period of five years. Some even have lock in periods of fifteen years. Mutual fund schemes have lock in periods of three years after which investor can withdraw the money if he or she so wishes. Several SIP plans have been now introduced that have no lock in periods and investors can choose to withdraw their investments any time they choose too. In this regard mutual fund schemes are offering a higher flexibility as compared to other types of investments.

Systematic Investment Plan Options: Investors have the option of investing in mutual fund plans either in lump sum mode or through Systematic Investment Plan or SIP mode. Under the SIP mode investors can make investments periodically which can be yearly, half yearly, quarterly, monthly and even weekly. The SIP mode of investing in mutual fund investments is becoming highly popular as most people are viewing it as a reduced risk option. Earlier people who were afraid of putting their money in stocks are now willing to try their flavour through SIPs.

High Returns: Top mutual fund schemes have been offering minimum annualized returns above 13 %. Some mutual fund schemes are offering returns above 25 %. If we take the past five years data of top mutual fund performance then we can see that the annualized returns have been constantly higher than other savings and investment options. Fixed deposit rates are presently around 6.5 % and long tenure saving schemes like PPF, NPS and other schemes having long lock in periods are offering 8 to 9 % returns presently.

Tax Savings: Tax savings options are also one of the mutual fund benefits. Mutual fund portfolios comprising equity stock qualify for tax exemption under section 80 C of the Income Tax Act. Though some recent changes may have been effected by new tax regimen in this regard yet mutual fund schemes are offering substantial reduction in the taxable income base and fund managers are ever on the vigil to make the most of the new tax regimen for devising ways to reduce tax burdens of their investors.

Investor Preference: Investors can invest in several types of mutual fund schemes as per their investing preferences and risk appetites. Mutual fund portfolios can be stable, balanced and growth based portfolios. The three broad categories can have variants. For example the growth based equity fund portfolio can comprise mid cap, small cap or large cap stocks. The balanced and stable portfolios mostly comprise of debt based instruments that are low on risk.

Online Monitoring: Mutual Fund Benefits include online monitoring feature of the mutual fund scheme. The investor can access the performance of mutual fund scheme on the fintech enabled portal. Investors who purchase investment products on the customer portal can have their own portal accounts where they can access the records of all their investments and performance related data any time they choose to from their hand held devices or laptops.

Easy Purchase: Investors can now purchase mutual fund schemes and avail all the mutual fund benefits through the online investment aggregator portal. Investment choice can be made after getting the comparisons and quotes of the top mutual fund schemes.

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