Saturday, November 15, 2008

Advantages of Investing in Mutual Funds

Mutual funds provide a great deal of advantages as an investment avenue. They make saving and investing simple, accessible and affordable. MFs present an attractive investment option over direct equity. MFs provide an attractive and simple way of tapping the potential of various investment options like equity, debt and money market investments.

Fig. 1.12 Advantages of investing in Mutual Funds

Some of the advantages of investing in MFs are:

· Professional management

While a single individual may not be able to afford the advantages of a professional fund manager, it becomes one of the main advantages enjoyed by mutual fund investor who enjoy the services of experienced and professional fund managers who manage the portfolio of securities on a full time basis and decide which securities to be bought and sold based on extensive research.

· Diversification

Mutual Funds help provide diversification of investments which help to reduce the risk an investor by investing in single security. MFs provide diversification to an investment portfolio by holding a wide variety of securities. It provides the opportunity to invest in many markets and securities.

· Variety

With a variety of scheme available, investors can very specifically select the stock, bond or money-market funds they would like to invest in considering their investment objective and risk taking capacity. It offers different types of schemes to investors with different needs and risk appetites. Investors now have the opportunity to invest in many markets and securities. And also they can select funds based on their investment objective, i.e., whether they want regular income or capital appreciation or liquidity.

· Low Cost

MFs involve investments by a large number of investors because of which they are able to provide the benefits like diversification and professional management at a fraction of cost of making such investments independently. They involve buying and selling large amounts of securities at a time thus helping to reduce the transaction cots and bring down the average investment cost per unit, thereby helping in achieving economies of scale.

· Liquidity

Liquidity is the ability to readily access your money in an investment. MFs provide the benefits of liquidity as they have the ability to get in and out with relative ease. Investors are able to sell their MFs in a relatively short period of time without there being much difference between sale price and market price.

· Simple

Investment in MFs is considered to be simple as compared to other available instruments in the market. The minimum investment is also considered to be affordable.

· Tax Benefits

MFs also seem to be an attractive investment avenue to many because of the tax benefits they provide. Dividends declared by MFs are tax free in the hands of investor.


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