In India currently, mutual funds have become almost synonymous with investments. More and more new as well as experienced investors are making mutual fund investments to grow their portfolios. But why is that? That’s because mutual funds offer several benefits that a range of investors can benefit from, irrespective of their financial profile or goals. So, let’s look at some of the most important benefits of investing in mutual funds.
- Diversification and risk reduction
When you invest in a mutual fund, you are not investing in an individual security but in a basket of securities. What this means is, when you invest in an equity mutual fund, you are investing in stocks of multiple companies. Similarly, when you invest in a corporate bond fund, you are not investing in a single bond issued by a single company but in several corporate bonds issued by different companies.
This is one of the major advantages of mutual funds because it allows risk reduction through such strategic diversification. Even if one or two of the underlying securities in the mutual fund do not perform well, the other securities will make up for the performance and your overall returns won’t take a hit.
- Professional management
Another one of the major advantages of investing in mutual funds is that each fund is managed by a financial expert called the fund manager. It is the fund manager who picks what securities should make up the mutual fund and in what proportion. It is also the fund manager who makes all other crucial investment decisions such as when to buy, when to sell, when to change the asset allocation, etc.
This is a great benefit because investors can take advantage of investing in different markets even when they don’t have a lot of knowledge or enough time to track market movements. That’s because the fund manager and their team of experts take care of all these strategic decisions.
- Flexibility and convenience
Mutual funds also make for a great investment because they are flexible investment products that make different asset classes and investment products accessible to investors. For instance, you can choose to invest in mutual funds either through a one-time lump sum payment or opt for a Systematic Investment Plan (SIP).
Under the SIP route, you can invest small amounts of money regularly in a mutual fund of your choice. So, you can begin investing in the stock market with as little as Rs 500. You can also access foreign markets, asset classes such as gold, etc., through mutual funds, making this a convenient investment choice to build a solid, diversified investment portfolio.
Wrapping up
As you can tell, mutual fund investments are a great option for all types of investors out there. They also are the best option for goal-based investing as you can start SIPs in different types of mutual funds for different financial goals based on your goal, risk appetite, and investment horizon. Mutual fund investments can either be made directly with the Asset Management Company (AMC) or through brokers and agents. You should pick the option that’s the most convenient for you while keeping in mind the cost of each.
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