MUTUAL FUNDS: A LUCRATIVE INVESTMENT OPTION

The article summarizes the advantages of mutual fund as a lucrative investment option. Mutual funds reduce the risks posed by the volatile economy and give you the benefit of diversification and asset allocation. Mutual funds employ the best of professional fund managers who carefully undertake research and analyze the performance and prospects of investments. This gives you portfolio management services of professional managers which otherwise would not have been affordable to an individual investor. Owing to the large number of investors, the transaction costs, commissions and other fees get reduced to a large extent which makes the mutual funds comparatively less expensive.

Mutual funds, as the name suggests, refers to raising and investing funds mutually, i.e. on behalf of everyone investing in the scheme. There are three basic ways to make money from mutual funds: Dividends from Shares and Interest on Bonds, when the fund sells securities that has a rise in price, the mutual fund gets capital gain and when the mutual funds increase in price, the fund’s shares also enjoy a price rise. Mutual funds are preferred a lot by investors because it spreads the investor’s money over a wide range of asset classes. Mutual funds diversify your money and risks. So if one asset class is not performing well, it will be offset by the other asset classes who are performing well. In the case of mutual funds, investors are not interested in day-to-day management of funds like shares, but they are interested in the final outcome of the investment.

Mutual fund companies employ the most experienced and skilled professional fund managers who undertake investment research to analyze the performance and prospects of an investment before selecting it. So you enjoy the financial planning and portfolio management services of professional fund managers which otherwise would not have been affordable by an individual investor. Asset Allocation refers to holding a wide range of investments in your portfolio. The investments in mutual funds are spread across a number of industries and asset classes. Thus when you invest in mutual funds, you get the benefits of diversification as well as asset allocation without the need to invest a large amount of money.

Also, a large number of investors invest in mutual funds. So the transaction costs, commissions and other fees get reduced to a large extent. Because of these economies of scale, mutual funds are comparatively less expensive. The dividends that are received from the equity schemes of mutual funds are completely tax-free as they are schemes of equity exposure of more than 65%. So the mutual fund does not have to pay dividend distribution fee. Also the investor doesn’t have to pay any income tax on it. The Securities and Exchange Board of India (SEBI), regulates and monitors mutual funds in India. The investors are provided regular information by mutual funds about their investments, proportion of investment in each asset class, specific investments made by the scheme, etc.

So before you invest your money in mutual funds, look at your financial situation and your financial goals. You can seek advice from others whether to go for mutual fund investments or mutual funds SIP and so on. It is very important to weigh all the options available to you against each other. Though mutual funds don’t give you much control, you get professional management for it which will help your money to perform well. So you just have to make sure the mutual fund that you have selected suits your need and performs well in the economy.