The benefits of investing in mutual funds

Investing in mutual funds can be highly beneficial especially if you are looking for a simple yet diversified way of investing. Mutual funds are professionally managed and convenient.

A mutual fund is a financial instrument, which pools the money of different investors and then a fund manager invests them in different investment options and securities. When you invest in a mutual fund, you become the owner of a certain number of units in that fund. The income that the fund generates is then distributed among investors by calculating the mutual fund’s net asset value(NAV).

Knowing the rules of investing in mutual funds can help you save from losses or undue risks thereby creating your wealth for the long run.

Benefits Of Mutual Funds

  1. Diversification

    When you invest in mutual funds, your fund manager will invest your money in different securities including equity, stocks, debt funds and other money market instruments. Logic dictates that there is little chance of all instruments not growing to their potential. It is also possible that if one instrument doesn't perform as well as the other, they balance each other out, thereby netting off your risks and making your investment safer.

  2. Professional Management

    Mutual funds are monitored and managed by professional fund managers who are responsible for deciding where and when they should invest the pooled funds. Investments are made by closely following market trends and exhaustive research.

  3. Liquidity

    Liquidity means the ability of an asset to be converted into liquid cash. Imagine if you have an emergency and need cash but don't have enough funds in your bank. It's not possible to sell property or avail of a loan instantly. But with mutual funds, you have the freedom to withdraw your money instantly. Mutual fund investments are known to be highly liquid assets and can easily convert to cash whenever you need some liquid funding. That being said, you need to ask your fund manager if your mutual fund can be cashed out on an immediate basis as some funds can have a lock-in period.

  4. Smaller, Disciplined Investments

    With mutual funds, you can start investing with an amount as minimal as Rs.500. If you don't have the discipline to invest regularly, a Systematic Investment Plan(SIP) can help you inculcate the habit. This means you are not constantly worried about investing large sums and you can also ensure that you are cultivating a routine for investing periodically.

  5. Convenience And Simplicity

    Unlike stock market investments, which can be quite a complicated affair, investing in mutual funds is relatively simpler. All you must do is approach a bank or a non-banking financial institution and they will be able to set up a mutual fund account for you instantly. You can also set up a mutual fund account from the comfort of your own home. Once your Know Your Customer (KYC) documents are verified, you can start investing using online accounts or even mobile applications.

Despite the benefits, mutual funds are subject to market risks and you must always read the offer documents carefully before making any investments.