Investment expertise:
Investing in stocks and bonds requires considerable expertise and experience. You need to have knowledge of financial markets, industry sectors, individual companies and research expertise. A major advantage of mutual funds is that they are managed by professional fund managers who have the desired qualification, expertise and experience in picking the right stocks or other instruments to get the best risk adjusted returns. The fund managers are supported by the research team of the AMCs.
Variety of products:
Mutual funds offer investors a variety of products to suit their risk profiles and investment objectives. Apart from equity funds, there are hybrid funds, debt funds, liquid funds and tax savings schemes etc. to suit different investment requirements. The benefits of investing in mutual funds is that you can invest in the appropriate product suitable for your specific needs and risk appetite.
MUTUAL FUNDS
Benefits of mutual funds in India
Risk Diversification:
One of the biggest benefits of mutual funds is risk diversification. Every stock is subject to three types of risk – company risk, sector risk and market risk. Company risk and sector risk are unsystematic risk, while market risk is known as systematic risk. Mutual funds help investors diversify unsystematic risks by investing in a diversified portfolio of stocks across different sectors. While individual stocks have both unsystematic and systematic risks, mutual funds are only subject to systematic risk or market risk.
Smaller capital outlay:
Another advantage of mutual funds is that you can start investing in mutual funds with relatively small amounts. Investors will require a large capital outlay to build a diversified portfolio of stocks. On the other hand, since mutual funds work on the basis of pooling of money, mutual fund investors can have the beneficial ownership of a diversified portfolio of stocks with a much smaller capital outlay. Investors can buy units of a diversified equity mutual fund with an investment as low as Rs 5,000/- only or even lower at Rs 500 for ELSS schemes
Economies of scale in transaction costs:
: Lower transaction cost due to economies of scale is another advantage of mutual funds. Since mutual funds buy and sell securities in large volumes transaction costs on a per unit basis is much lower than what retail investors may incur if they buy or sell shares through stock brokers
