Mutual funds have become very popular as an investment avenue. Investment in mutual funds is a great option because the cost of managing the mutual funds is less, and the procedure is quite simple as compared to other portfolios of stock.
Before proceeding further to explore the advantages of investing in mutual funds, let’s take a look at the definition of mutual funds.
What is a Mutual Fund?
Mutual Funds are basically a financial instrument which pools the money of various investors to invest it in different stocks, bonds, shares, debentures etc. Investing in mutual funds is absolutely a simple process and is quite similar to buying and selling of bonds or stocks online. In mutual funds, losses are also equally shared by the investors just like the rewards and profits. Furthermore, mutual funds are registered with Securities and Exchange Board of India (SEBI) which regularly monitors the security market and therefore, there’s no chance of fraud.
There are different types of mutual funds such as equity funds, debt funds, sector funds, hybrid funds, and many more. Thus, the investor can choose the mutual fund according to their requirement.
Now, there are several advantages of Mutual funds investment. Some of the major advantages of investing in mutual funds are mentioned below:
- Broad Market Exposure – Diversification
One of the benefits of Mutual funds investments is diversification. As there are different types of investments within a portfolio, therefore, it is beneficial in managing risk. In mutual funds, investors get a chance to buy stocks of different capitalizations from different industries. Moreover, there’s no requirement of a large amount of cash to create individual portfolios.
- Liquidity
Mutual funds are advantageous because an investor can get in and out without any problem. In simpler words, an investor can redeem their investment according to their convenience. You can sell your mutual funds as per your needs even if there’s not a big difference between the current market value and sale price. But, it is also suggested that you look for the associated fees attached to the selling of mutual funds.
- Professional Management
Another advantage of investing in mutual funds is that it offers expert management. There’s no time wastage in mutual funds like buying, selling, analyzing or researching the stocks and bonds. The professionals have the best knowledge about mutual funds and related schemes. Therefore, their assistance can be beneficial for an investor for every decision related to the mutual funds.
- Diversified Investment
In mutual funds, investors get an opportunity to diversify the risk by purchasing different stocks, bonds and securities of different companies. Within one portfolio, an investor can invest in dozens of securities, stocks, debentures etc. If you are investing in one or two securities, then it will be a little risky especially if the price of the stocks declines significantly.
- LESS EXPENSIVE
Brokerage costs for mutual funds are less expensive as compared to stocks and securities. The reason behind is that the manager will do all the essential trades to maintain the portfolio of the mutual funds. However, the investor will be charged nominally. To keep the cost of the mutual funds low, the investors should buy the mutual funds at low expense ratio.
So, if you are interested in mutual fund investments, you can invest money in mutual funds online.
