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Mutual Funds Investment Benefits for Individuals

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Mutual Funds Investment Benefits for Individuals

Mutual Funds are a very popular and simplest investment options available these days as the Investment in Mutual funds can be done by Individual at just one click. Earlier the Mutual funds because of its compliances and investment barriers not so popular but after the technology has taken the rise, the mutual funds popularity has also risen. Even a 5 year old can investment in the Mutual funds.

Mutual Funds gained popularity not only because it’s easy to invest, they get popularity because mutual funds are less risky and come with higher returns. So those individuals who used to keep their money in the saving bank account, now keep more than 50 percent of their savings in mutual funds as they offer almost double the return what a saving bank account usually offer.

So what are mutual funds and who operates them?

Mutual funds are investment conveyance formed after an AMC (Asset Management Company) pools the funds from various individuals or other investors with a common objective. After that AMC hires a fund manager who will look after the money of the investor and make the investment decisions so the maximum return for the investors can be generated. Fund manager generally invest in the Shares and Debentures of the less risky companies and some amount in the Companies with little more risk with higher return. The amount earned by individual from mutual fund will be taxable in the same way as if that individual has earned it himself.

 

 

Types of Mutual Funds:

  • Equity Mutual Funds: As the name suggests, the Mutual funds whose major investments are in the equities. Major investment means more than 65% of total investments. Among all the classes of mutual funds, Equity mutual funds provides the highest return. As the return is higher the risk is also higher as the equity funds are highly volatile and depends on the market movement.
  • Debt Mutual Funds: These mutual funds invests major funds in the debt instruments which provide fixed income and some of its money in the money market. Here also the major investment means minimum 65 percent investment in debt securities. These funds are issued for the investors who are highly risk averse as debt funds are not so influenced by the market fluctuations and the return offered by the debt funds remain constant and can be predictable easily.
  • Hybrid Mutual Funds: Hybrid mutual funds are combination of both equity and Debt mutual funds as these invests proportionately in both Equity and Debt Mutual Funds. Hybrid funds emerged with the need to diversify the risk reward ratio of the investment portfolio. In Hybrid Funds the fund manager has to make the decisions regarding the modification of the asset and fund allocation as the market changes. Hybrid Funds provide higher return of the Equity Funds and the lower risk because of Debt elements in it. Hybrid Funds offers Various Plans such as Monthly Income Plans, Arbitrage Funds Etc.

 

Benefits of Investment in Mutual Funds

There are several Advantages of Investing in the Mutual Funds as these gives the higher return in Comparison to saving banks accounts and the low risk rate at the same time. Also the mutual funds are very flexible with the benefits of the diversification. So following are some characteristics and benefits of mutual funds that makes investment in mutual funds a viable option:

  • Experts (Fund Managers) take care of the Investments: As read earlier in this article, mutual funds are handled by Experts who are fund managers of the mutual funds. These fund managers have a vast knowledge and experience of investing money in the market. Fund manager is not only single person, but a team who will manage and keep eye on the investment at all the time. They try to invest in the best and the good image stock so the mutual funds investors do not incurs loss.
  • No FIXED Lock in Period of Investment: There are some other investments available in the market such as gold bonds etc which provides return similar to mutual funds but these other investments comes with a lock in period of minimum 3 years and maximum 15 years. During which Investor cannot use his money. But this is not the case in case of Mutual funds. Investor can come and go anytime without any loss of return by giving a small negligible amount of exit and entry charge.
  • Cost Effective: Investment in mutual funds is very cost effective as there is maximum 2.5 percent of expense ratio. And there is no cost for paper work as all the things today are done online. As the Funds involves very high amount so 1.5 to 2.5 percent of the funds is sufficient to provide for the salary and fees employees and fund managers.
  • Flexibility: People tend to invest less when they find out that their amount will get blocked for a minimum period. Mutual funds removes this problem as most of the mutual funds offers no lockin period and made mutual funds more attractive. It means that people can invest their funds in mutual funds as savings with higher return and can also look at it as an emergency fund as the fund can be withdrawn anytime.
  • Tacking is Very simple and easy: Fund houses has a clear understanding that how the investor think about the other investments. So to attract more and more investors towards mutual funds it is necessary to make the investment process simple and hassle free. So investment in mutual funds can be simply done by using an app or just by login on the specified mutual fund website or by using third party websites.
  • Saves Tax: ELSS (Equity Linked Saving Scheme) is a mutual fund which is equity oriented and provides a deduction under section 80C from gross total income upto Rs. 150,000/- which can ultimately saves you a tax amount of Rs. 46,800 per annum. This Equity oriented mutual fund is the most popular tax saving investment option. Although it comes with a lock in period of 3 years but the tax benefit plus the interest income exemption is a very lovable by the investors.

Hope the article was helpful. Thanks

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