BENEFITS OF MUTUAL FUNDS
What is a mutual fund? Was the question about 25 years ago, when mutual funds were initially introduced. Since then, the investor psychology concerning mutual funds has improved drastically. Ever since they have been created, Mutual Funds have been an increasingly popular form of investment for a host of investors. They are simple, and provide other great attributes for investors who are time-tied or just have very limited knowledge or money. Let’s evaluate why mutual fund investments have become the biggest trend these days.
Major advantages of investing in mutual funds
Advantage 1: Mutual fund investments are more or less stress-free: Investments are always surrounded by a degree of uncertainty. An investor is scared of investing due to lack of adequate knowledge & time, self-discipline, or investing experience. Mutual funds fit in perfectly in this situation as they have an inherent design to tap professional expertise to manage investments which, in turn, relive the stress of the investor.
Advantage 2: Mutual funds offer diversification: Diversification of assets is a rule for both large and small businesses. This is done so that an unexpected loss by a collapsing stock will have a minor effect on the rest of the portfolio. Without a mutual fund, the investor will invest their little chunk of investment in one or two stocks thus exposing oneself to a higher amount of risk.
Advantage 3: Mutual funds offer tax benefits: Mutual fund investments which are held for long term (12 months or more) qualify for capital gains 7 are taxed accordingly. Mutual funds also have a benefit of indexation.
Advantage 4: Mutual funds have liquidity: In open-ended mutual funds, an investor has an option of redeeming all or a part of their investment at any given time to get the current value of the stocks held. This process is standardized which makes this procedure efficient & fairly quick, so that the investor can get their money as soon as possible.
Advantage 5: Mutual funds are transparent: The performance of a mutual fund is reviewed regularly by several agencies, publications & professionals. This makes it easier for an investor to compare different funds to each other. As an investor in the fund, one is provided with regular updates like monthly account statements, monthly and half yearly portfolio disclosure etc.