Why Should You Invest In Mutual Funds?

Benefits of Investing In Mutual Funds as under :

a)Professional Management : Mutual funds business is managed by highly skilled professionals whose job and responsibility is manage money. Thus they tend to do a better job as compared to most individuals.

b)Diversification : One particular scheme of a mutual fund invests in fairly diversified set of assets, like a debt mutual fund will usually invest in 15-20 varied instruments, so would a equity fund do in 50-60 stocks. Thus the risk is widely spread.

c)Informed decisions : Since the money is managed by a team of skilled professionals, these people meet the managements, competitors, understand the financial statements in great details, talk to various market participants, and thus they are better positioned to take well informed decisions.

d)Efficient cost : Since mutual funds work on the concept of pooling of resources, their costs are very low as the volumes are pretty large. Also, their fixed expenses are very low as they do not have many branches or huge sales teams, as compared to banks or insurance companies.

e)Liquidity : Most of the mutual fund units are highly liquid, as one can get withdrawal payment back in max. 3 working days.(Except ELSS mutual funds, which have a mandatory lock in period of 3 years).

f)Well regulated : Mutual funds are very well regulated by SEBI and they have to follow their strict audit, investment and compliance rules.

g)Tax benefits : Mutual fund investments are categorised as securities and thus they attract capital gains tax. The applicable short term capital gains tax is as per ones current tax bracket and long term capital gains tax is 10% for debt and NIL for equity oriented schemes. ELSS schemes also offer tax benefits u/s 80 C.

h)Return potential : Since debt mutual funds invest in market linked instruments, they tend mirror the returns at current prevailing interest rates of the markets. If one wants to beat the inflation, then he can invest in equity schemes, which are well diversified, have good managements and sound performance track records.

by: Rajendra Bhatia

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