Mutual Fund offers a wide range of benefit to attract the small retail as well as big customers. Because of these reasons, the small investors with Rs 1000 investment and Indian Government EPF trust with Rs 3.5 lakh crore assets depend on mutual fund to gain better than market average return. The benefits are provided below
Small Investments: Mutual Funds enable the investors to invest in small amounts as low as Rs 100. The SIP or the Systematic Investment Plan has been introduced by the mutual fund companies to enable the small retails investors to contribute as low as Rs 100 every month in the stock market companies via the mutual funds. Also the small investors do not have proper knowledge regarding the share market investment, mutual fund enables them to invest in the share market to get the benefit share price increase in a bull market.
Diversified Investment: Because of Mutual funds, the investors can invest in different sectors and diversify their investment properly to reduce the risk and earn better profit. The fund managers also invest in different sectors to diversify the risk. This is only applicable for normal equity, debt funds. The sector oriented mutual funds like IT Equity mutual fund do not provide this benefit as they invest only in the companies from a specific sector.
Can invest in shares with high Value: The small investors can invest in companies with higher share price through mutual fund route; which they cannot afford to buy individually. It is same as buying some percentage of a share with high prices which can only be possible through mutual funds.
Tax Savings: Tax savings mutual funds also provide tax savings for the investors but they have some lock in period. Lock in period can vary based on the country’s income tax rules. InIndia, the tax savings mutual funds have 3 years of lock in period.
Professional Fund Management: The mutual funds are managed by the professional fund managers with very high qualified experience in portfolio management and securities analysis techniques. The fund managers are expected to outperform the benchmark market index through proper investment and portfolio management process, and for most of the cases, they are able to do the same.
Wide Range of Choices: Mutual funds provide a wide range of choices of investments to the investors from equity, bonds, money market instruments, commodity funds etc. Within equity investments, the mutual funds provide difference choices as large cap, small cap, mid cap equity groups, different sector choices like Oil and Gas, IT, Banks, Capital Goods, Telecom etc. The investors can chose their choice of sector for investment purpose while selecting the appropriate sector or group.
High liquidity: Mutual funds specially the open-end funds provide very high liquidity because of daily availability of NAV. The investors can easily buy and sell at the last published NAV rate anytime during the trading hours.
Easily comparable: Performance of one mutual fund can be compared very easily with performance of other mutual funds as they all publish NAV daily for the investors. Using the changes in NAV, investors can easily compare their performance within one particular group. There are lots of websites as well which compare the performance of different mutual funds on ongoing basis.
Risk Distribution: The risk is distributed because of diversification across different sectors and investment in debt. The hybrid mutual funds invest in government bonds and debt instruments which are considered to be risk free. These investments decrease the overall risk in the investment and help to diversify the same.
Regulated: The mutual funds are highly regulated by the market regulator to make it more transparent and investment friendly to the investors. InIndia, all the mutual funds are regulated by the Securities and Exchange Board of India (SEBI) which also determines the upper cap of load factors and other fees.