Investing in mutual funds is one of the smartest and easiest means of investment for any type of investor- a beginner or a seasoned investor. Without much ado, let’s have a look at the top 6 advantages of investing through mutual funds.
- Professional Expertise: One of the primary reasons why an investor would prefer investing through mutual funds is because they are professionally managed. Just like shareholders of a company have money but lack the requisite skills to run a company, and thus hire a CEO to operate the business. Similarly, investing require skills to understand the market dynamics, various industries and the organizations falling under the certain category of industry. A mutual fund provides one with professional fund managers with industry certifications which provides them with an extra edge in the investment market.
- Diversification: Just like an old proverb “Do not put all your eggs in one basket”, mutual funds work by investing in hundreds of securities and bonds within one portfolio, thus diversifying the investments. Diversifying essentially means spreading your investments and market risk to various different kinds of securities. So in the case where one security does not perform well, the others pull the entire performance up and thus causing minimal harm to the investor’s portfolio. However, doing it on own would require a lot of time, research and high amount of risk involved. Mutual funds help the investors diversify their assets and investments at a very low cost.
- Investing in Mutual Funds is easy: Creating a portfolio with adequate research on various stocks and bonds could be a herculean task for an average investor. Additionally, an investor needs to trade and keep the research ongoing to keep the portfolio maintained. This could get too overwhelming for a beginner investor. Investing in mutual funds is the best alternative, where you understand your investment objective and move on building your portfolio, with minimal effort, by starting with one mutual fund and gradually investing in multiple mutual funds. All you need to start is your PAN card and a bank account number. Since most of the mutual funds are well connected with the banking system, the money gets directly deposited to your bank account in case of any liquidation.
- Low-Cost Asset Management: Mutual funds charge a certain percentage of your money, usually 2% to 3% of your money invested each year as charges. As mutual funds work by pooling in money from a wide number of investors, they easily achieve their economies of scale. Diversifying on your own would cost an investor a much higher amount in terms of commission charges.
- Versatility: Mutual funds are versatile enough to be used as an investment means for a beginner investor and can be used by large investment funds to manage the assets of their wealthy customers. As an add-on, mutual funds are liquid investments. Unless otherwise specified a lock-in period, an investor can liquidate his investments without any fuss. The money is usually available in a couple of days in the investor’s bank account.
- Regulated: Mutual funds are all controlled by the Securities and Exchange Board of India, the Securities and Exchange Commission or any other securities and exchange board of a country.
- Thus they provide investment comfort to the investor: These regulatory bodies make it a mandate for the mutual funds to release their portfolios at a fixed regular interval. Though most mutual funds voluntarily disclose their portfolios every month, an investor can easily check if the amount is being invested according to their objectives and thus make an informed choice of investment.
Owing to their ease and simplicity, investors can save a lot of time, money and energy in identifying an investment vehicle and diversifying market risks.