Mutual funds are professionally managed investment funds that pool money from various investors for purchasing securities, e.g., equity shares, bonds and money market instruments.
Mutual fund benefits include a higher level of diversification, liquidity, and management by professional investors. As a result, a lot of investors are attracted towards them.
History of Mutual Funds in India
The first mutual funds were introduced in India in the year 1963, with the establishment of Unit Trust of India (UTI). UTI maintained a monopoly over the mutual fund distribution in the country until 1987, when other government financial institutions like State Bank of India, Punjab National Bank and Canara Bank, developed their own funds.
Mutual Fund benefits the buyer in a number of ways. It is readily sought after by the people who want easy returns. Being simple, and employing lesser time and money, mutual fund benefits the investors greatly. Some of these advantages are listed below:
- User Friendly
A mutual fund is one of the most popular investment methods owing to the fact that it requires no experience or any knowledge of economics or markets. Even a layman can invest easily in them and be successful. These things make them easy to operate as compared to other investment ventures.
- Easily Accessible
Mutual Funds aren’t just only easy to understand; the ease with which they can be available in the market is unparalleled. They are readily available brokerage firms, online brokers, mutual fund companies, banks or insurance companies. Anyone interested can easily gain access to them and open a mutual fund account hassle-free.
An important rule of investment is diversification. The term diversification means mixing of investments within a portfolio in order to manage risk. For instance, by buying stocks in the retail segment and counterweighing them with stocks in the industrial area, one can decrease the effect of the presentation of any one security on their entire portfolio. Mutual Fund benefits the person by providing profits of instantaneous modification and asset distribution without the need of any large sums of cash required to create individual portfolios.
One of the most important mutual fund benefits is that one can get in or out of them very easily. The mutual funds can be sold at any time without any major difference between the selling price and their current cost in the market.
- Managed by Professionals
When somebody invests in mutual funds, they need not research about the companies and bonds which would be profitable or when to buy or sell. The reason is that mutual funds are managed by a team of experts of the market who analyze and research everything regarding the latest trends of investment. This saves a lot of time and energy of the investor.
- Wider Range Of Options
With the growing portfolio of mutual funds, one can diversify the investment into other mutual fund categories. Investments can be made in mutual funds that cover the main asset classes like bonds, stocks or cash. One can even venture into specialized areas, such as sector funds or precious metals funds.
Mutual fund benefits even those who can’t invest a lot in the market. Mutual funds can be bought at a comparatively lesser price, while at the same time; it gives back a larger amount as return. This considerably reduces the risk of loss.
The mutual fund benefits don’t end here. They can be employed in a variety of ways like for saving taxes under Section 80C of Income Tax Act, as sub-accounts, dividends, short-term savings, long-term savings, banking services, for growth, for wealth build up etc. There are almost limitless possibilities in the ways mutual funds can be used by the investor.
- Economics Of Sale
The more of one product a person buys, the cheaper that product becomes. For example, when one buys a kilo of apples, the price per apple is usually cheaper than when buying a single one. This proposition is also followed during the sale and purchase of securities in the market. This amounts to one another mutual fund benefit, which is the ability to take advantage of their buying and selling size; thereby reducing the transaction costs. So with buying a mutual fund, one can easily diversify, without paying any commission charges.
These were some of the major merits of mutual funds, but as is with any investment, there are risks involved in buying mutual funds. However with proper planning and utilization of its merits, one can earn profits from them quite easily.