Why is it Important !
Mutual funds reduce risk of direct investment in stock market.
Investment in Stock markets offers higher returns on the investments, but to benefits from stock markets it requires a certain amount of knowledge about the Equities, Shares, Debentures, Bonds, etc.
Normally, people have limited knowledge about market functioning, yet they invest in the stock market and lose their hard-earned money. To overcome this problem and utilize the advantage of higher returns on investments, Mutual Funds were established.
Mutual Funds
Popular Investment Plans offered by Mutual Funds
Large/Mid/Small Cap Fund
Based on market capitalization companies are categorized as Large, Mid, and Small Cap. Mid and Small cap companies usually offer good returns.
Hybrid Fund
In this plan, investment is made in a combination of equity and Debentures to get the advantage of both Equity and Debentures.
Debt Fund
In this scheme, investment is made in highly rated Debentures and Bonds of the reputed companies. It offers moderate returns but stable.
Equity Fund
In this scheme, the amount is invested in the Equities or Shares of the reputed public limited companies. The return in the scheme depends upon the performance of the company. It offers high returns, but not certain.
Sectoral Funds
Pharma Fund, Energy fund, Infrastructure Fund
In this plan, investment is made in companies of a particular sector to get advantage of the flourishing of the sector.
In this plan, investment is made in companies of a particular sector to get advantage of the flourishing of the sector.
Mutual Fund Advantages
Easy Investment Options
Investment in Mutual Funds is easy. We can invest either in a lump sum or through a Systematic Investment Plan or SIP. It suits every class of people. Even a small amount of Rs 500 per month can be invested.
No Expertise needed for Buyer
Mutual funds are organized my provider’s team who have expertise in investment. Teams are backed-up by in-house research team and professional funds managers. Mutual funds Charge a nominal fee known as Expense cost for managing the funds. It ranges from 1-3 % only.
Easy Liquidity
It offers easy liquidity. We can anytime redeem our investment on Net Asset Value of the scheme prevailing on the day of redemption.
Transparency
It offers transparency in their work. Mutual funds periodically publish the details of their investments. Net Asset Value of schemes is calculated daily and published on their websites.
Governed by SEBI
Mutual Funds are regulated by SEBI. They are subject to various statutory compliances. This ensures the safety and security of investors’ funds.
Eligible for certain Income Tax benefits
Investment in Mutual Funds is eligible for certain Income Tax benefits also. Investment in Equity Linked Savings Scheme (ELSS) qualifies for exemption under section 80C of Income Tax Act. Whereas capital appreciation also qualifies for Long term Capital Gain (LTCG) up to Rs 1.00 lakh.
Variety of Plans
Mutual Funds offer a variety of plans as per the requirement of the investor. It offers Equity Plans for high returns and debt Plans for steady but fewer returns. It also offers short term, Medium Term and Long-term plans as per the investment horizons.
Potential of huge returns in the long term
Investment in Mutual funds is capable of generating huge returns in the long term. It gets the benefit of compounding returns. It helps investors to generate huge funds for their long-term requirement for Marriage, Higher education of children, and purchase of a house.
Offer online facilities for Investment
Mutual funds are technology-driven. They offer online facilities for Investment, Redemption, upgrade of KYC, etc. We can do all these activities on the click of the mouse.
Low risk compared to direct investment
Investment in Mutual Funds is less risky compared to direct investment in the Stock market. Mutual funds have diversified portfolios to minimize risk.
Shortcomings of Mutual Funds
Investment in Mutual Funds is subject to market risks. Returns are market-driven. Hence returns are not guaranteed or assured.
One has to stay invested for the long term to reap the benefit of high returns. In the short term, there are chances of losing the capital also.
Return depends upon the expertise and acumen of the fund manager.
Returns are subject to Income Tax provisions. Hence, the effective return may be less than the actual return
The historical performance of Mutual Funds has shown great returns over the years. Hence Mutual funds have emerged as the most popular way of creating of wealth.
