Advantages of Mutual Funds for Investors
Mutual fund schemes full-fill the objectives of all types of investors. The various objectives of various types of investors may be to create wealth with high growth or earn small but safe return on their investments or to save tax upto limit of 80C or tax free income or investment liquidity. Investments are available for big investors as well as small investors, institutional investors as well as retailers. All these types of objectives for all types of investors can be fulfilled by mutual fund schemes.
Stock market is magic to grow wealth. But if we are doing any job without knowledge, we are gambling and there is risk. If investors invest directly in stock market without adequate knowledge, there is risk of loosing their capital. They can't diversify their portfolio if they have small capital. If they invest with mutual funds the shortcomings can be fulfilled. The advantages of mutual funds for investors given below :
Professional Management
Mutual Fund distributors help the investors to select available funds to attain their objectives. Mutual funds have professional managers who provide their services to earn an income or build their wealth through their investable funds.
Portfolio Diversification
If there is not adequate fund, investor can't diversify his portfolio. But with the help of Mutual Fund investor take advantage of diversified portfolio even in small amount of fund also. The diversification reduces the risk of portfolio.
Liquidity
Mutual Funds have very high liquidity. Except ELSS & FMPs investor can exit any time.
Economies of Scale
So many investors invest their small amount, which becomes very large. Due to this Mutual funds can hire professional managers to manage the fund, which is not possible for individual investor to avail their services. Due to large corpus of investment operating cost becomes negligible and provides power of negotiation with brokers, bankers and other service providers to minimize transaction cost.
Tax Deferral
Mutual funds are not liable to pay tax on income they earn, while individual investor's earns same income his liability is to pay tax on their earnings. Due to this advantage investor's wealth can legally grow faster.
Tax benefit
If investor wants rebate in taxable income can invest in mutual fund Equity Linked Saving Schemes (ELSS). The saving is deducted from the total income of investor. It also provides tax free income if invested in equity oriented schemes for at least one year or more. It also provides indexation Benefit if invested in debt funds for at least three years or more.