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Benefits of Investing in Mutual Funds

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Since their creation, mutual funds have been a popular investment vehicle for investors. Their simplicity along with other attributes provide great benefit to investors with limited knowledge, time or money. To help you decide whether mutual funds are best for you and your situation, we are going to look at some reasons why you might want to consider investing in mutual funds.

Professional Management

Instead of you making decisions based on gut-feel or what someone told you, when you buy into a mutual fund, you simply leave your investments in the expert hands of Professional fund managers, who invest your money on the basis of minute analysis and astute investment strategies. With their skill and experience at work, your money ends up in the relevant assets or the right place to do the right thing by you – grow your money. (If the terms and procedures make you dizzy, stop worrying about it – it’s your Fund Manager’s job to understand the fine print so let the professionals take over.)

Lower Risk

As far as you’re concerned, this is vital after all, it’s your hard-earned money we’re talking about! With mutual funds, the risk factor is significantly reduced as the money gets invested in a large number of securities, across categories and various asset classes. So, even if one scrip were to suffer, chances are that some other scrip would do favorably and even out the losses.

A better portfolio for less money

Say you want to invest Rs.5000 in a topnotch software company. And then you find that that’s not enough to buy you even one share in it! Rather than get shattered, if you invest that same Rs.5000 in an Information Technology Mutual Fund, you get yourself a proportionate share in a large number of premium software stock scrips.

Lower Transaction Cost

A mutual fund, by virtue of its status and the sheer volume of its investments is able to carry out buy-and-sell transactions much more cost effectively than you would all by yourself.

Conclusion

As with any investment, there are risks involved in buying mutual funds. These investment vehicles can experience market fluctuations and sometimes provide returns below the overall market. Also, the advantages gained from mutual funds are not free: many of them carry loads, annual expense fees and penalties for early withdrawal.

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Manish Misra
Manish is an Internet Professional and is currently employed with India's leading internet portal. He has versatile experience spanning across internet, e-business and retail financial services domains.

He has authored several analytical articles on personal finance in The Times of India and The Economic Times. Being a finance geek and having been involved with internet since the early days of the medium, he was a great help and source of guidance while formulating personalmoney.in. You can know more about Manish at ManishMisra.com

Disclaimer : Manish has agreed to write in his personal capacity. Views, opinions expressed in his articles are his own and do not necessarily reflect the views of his employer.

http://www.personalmoney.in

6 thoughts on “Benefits of Investing in Mutual Funds

  1. Required lots of study to select a right fund by collecting data of all the similar schemes available in the market and a compare study of each. How do you feel?

    1. Well, yes for the first time you need to do a lot of research. Then you only need to track relative performance, to see if there is any better similar Mutual fund scheme which you can add to your portfolio or switch your existing holdings to the new schemes. Specialized Mutual Fund sites like Value Research Online and Mutual Fund section on Moneycontrol can help you do the basic scheme selection and tracking.

  2. Well, investing in mutual funds is a good idea. However, it requires a lot of research works to find the best mutual fund to invest in. It also depends on the economy situation if your earning will increase or worst, decrease. I've actually invested money on it and noticed the earning is very inconsistent. Anyway, thanks for enumerating the benefits. It indeed, gave me a relief.

    1. Hi Marcy

      I agree with you partially. Mutual Fund investment do require some amount of research work but is lower than the research work required to invest in each equity stock individually. What is needed is to to find the Mutual Fund scheme that delivers better returns and has an investment style that suits your requirements. Earnings of Mutual Funds are directly proportional to the performance of Equity/Debt markets and it certainly involves risk. You are right that the Economic Situations impact performance of Mutual Funds as well. But you may agree that like good times, bad times will also not last forever!

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