What is are the benefits of investing in mutual funds?
Mutual funds give you an efficient way to diversify your portfolio, without having to select individual stocks or bonds. They cover most major asset classes and sectors.
Key Takeaways
Mutual funds offer diversification or access to a wider variety of investments than an individual investor could afford to buy. There are economies of scale in investing with a group. Monthly contributions help the investor's assets grow. Funds are more liquid because they tend to be less volatile.
Some of the advantages of mutual funds include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing, while disadvantages include high expense ratios and sales charges, management abuses, tax inefficiency, and poor trade execution.
A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments. Mutual funds require much lower investment minimums, providing a low-cost way for individual investors to experience and benefit from professional money management.
However, in reality, they are pretty simple in their investment philosophy and offer investors a host of benefits such as diversification, professional money management, economies of scale, transparency, and liquidity, to mention a few.
Mutual fund investments when used right can lead to good returns, keeping risk at a minimum, especially when compared with individual stocks or bonds. These are especially great for people who are not experts in stock market dynamics as these are run by experienced fund managers.
Mutual funds are generally considered a safer investment than stocks because they offer built-in diversification—something that helps mitigate the risk and volatility in your portfolio.
To withdraw money from mutual funds, submit a redemption request to the fund house. The process involves filling out a redemption form, specifying the amount you wish to withdraw. Keep in mind that certain funds may have exit loads.
- Appreciation in the fund's NAV, which happens if the fund's investments increase in price while you own the fund.
- Income earned from dividends on stocks or interest on bonds.
- Capital gains or profits incurred when the fund sells investments that have increased in price.
To calculate how much amount you should invest in SIPs, we will have to use the standard formula, which is 100 minus your age to be invested in equity through mutual funds.
What is the risk of a mutual fund?
All funds carry some level of risk. With mutual funds, you may lose some or all of the money you invest because the securities held by a fund can go down in value. Dividends or interest payments may also change as market conditions change.
No matter when you buy shares of a fund – many months before the record date or just days before – if you own the shares on the record date, you will receive the dividends and/or capital gains. If you buy a fund right before the record date, part of your investment will be returned to you when distributions are paid.
- Bank of India Flexi Cap Fund Direct Growth. ...
- Quant Flexi Cap Fund Growth Option Direct Plan. ...
- JM Flexicap Fund (Direct) Growth Option. ...
- Motilal Oswal Flexicap Fund Direct Plan Growth. ...
- ITI Flexi Cap Fund Direct Growth. ...
- Invesco India Flexi Cap Fund Direct Growth. ...
- Franklin India Flexi Cap Fund Direct Growth.
| Category | Average Return (%) | Maximum Return (%) |
|---|---|---|
| Fund of Funds-Domestic-Equity | 34.65 | 61.61 |
| Equity: Flexi Cap | 37.99 | 60.94 |
| Equity: ELSS | 37.67 | 60.08 |
| Equity: Multi Cap | 45.56 | 58.78 |
Long-term mutual funds offer several advantages for investors seeking to build wealth over time. These benefits include: Compounding: Long-term mutual funds harness the power of compounding, where returns are reinvested, leading to exponential growth of the investment over time.
Mutual funds let you pool your money with other investors to "mutually" buy stocks, bonds, and other investments. They're run by professional money managers who decide which securities to buy (stocks, bonds, etc.) and when to sell them. You get exposure to all the investments in the fund and any income they generate.
Mutual funds are largely a safe investment, seen as being a good way for investors to diversify with minimal risk. But there are circ*mstances in which a mutual fund is not a good choice for a market participant, especially when it comes to fees.
Downside risk is a general term for the risk of a loss in an investment, as opposed to the symmetrical likelihood of a loss or gain. Some investments have an infinite amount of downside risk, while others have limited downside risk.
Mutual funds are not tax-free except for ELSS (equity-linked savings schemes or tax-saving funds) and some retirement funds. As per the Income Tax Act, under Section 80C, you can claim a deduction of up to Rs. 1.5 lakh for investments made in ELSS and can save taxes up to Rs.
Mutual funds are liquid assets, and as long as you invest in open-end schemes, be they equity or debt, it's easy to withdraw your investments at any time. Moreover, there are no restrictions.
Should I put all my money in mutual funds?
While savings will help you deal with a rainy day and insurance will protect you in case of an unfortunate situation, mutual funds may help you fulfill your financial goals and build wealth.
The minimum holding time requirement applicable to mutual funds is one day. This is because the fund determines the applicable purchase price of the fund's units/shares on a daily basis. The price depends on the Net Asset Value (NAV) of the fund as of the purchase date.
To discourage excessive trading and protect the interests of long-term investors, mutual funds keep a close eye on shareholders who sell shares within 30 days of purchase – called round-trip trading – or try to time the market to profit from short-term changes in a fund's NAV.
Short-term capital gains (assets held 12 months or less) are taxed at your ordinary income tax rate, whereas long-term capital gains (assets held for more than 12 months) are currently subject to federal capital gains tax at a rate of up to 20%.
Earning $2,000 in monthly passive income sounds unbelievable but is achievable through dividend investing. However, the investment amount required to produce the desired income is considerable. To make $2,000 in dividend income, the investment amount and rate of return must be $400,000 and 6%, respectively.
