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What are the benefits of mutual fund investments?

Author: Team Finapolis/Saturday, March 24, 2018/Categories: Mutual Funds

What are the benefits of mutual fund investments?

Mutual funds, with their numerous benefits, are fast becoming the first and best choice for investments for beginners and professionals alike.

If you’re just starting out on investments and need a reminder about why to opt for mutual funds, take a look here:

Tax saving benefit of mutual funds

More often than not, the first thought that crosses an investor’s mind is if the chosen investment tool will fetch a tax benefit. One must do appropriate amount of research to make sure that the investment type opted for offers the benefit. It must be done in the planning stages to avoid suffering losses in the tax planning period. ELSS – Equity Linked Savings Scheme – is the ideal tax-saving instrument. It can be used to harness the potential of investing in the equity market.

ELSS is a diversified equities fund that comes with a lock-in period of 3 years. It offers a tax deduction up to 1.5 lakhs under the Section 80C of the Income Tax Act, 1961. Dividends declared under this scheme are also tax-free. The profits obtained from the sale of ELSS units are treated as long-term capital gains. If the fund is sold before the completion of a year, one has to pay short-term capital gains tax of 15% on the returns under Section 111A of the Income Tax Act.

ELSS is the best option for wealth creation over a long term. With its time horizon of 3 years, it has also gained popularity among investors. SIP is one of the best ways to invest in an ELSS. It takes care of the volatility of the stock market by rupee cost averaging, and takes advantage of compounding. Its lock-in period of 3 years allows one to take full advantage of the growth through equities.

Simplicity

For one to invest in mutual funds, one need not have extensive knowledge of finance and economics of stock markets. One has to just invest a sum of money in the mutual fund and it automatically takes care of the trading and risk management. Mutual funds invest your money in stocks, bonds and other assets. These securities collectively make up the portfolio of the fund.

Affordability and frugality

Most mutual funds have low minimum investment requirements. This amount can be even lower if the investor plans to invest via a systematic investment plan instead of a lump sum. Thus it caters to a variety of investors.

The transactional costs and annual brokerage fees are low for mutual funds, as compared to a typical stock portfolio.

It offers professional management

The advantage of investing in a mutual fund is that the investor doesn’t have to do the analyzing, buying and selling of stocks and bonds. It is professionally managed by a team of analysts that do the buying and selling while balancing out the risk factor.

Versatility

Mutual funds are bought by various kinds of investors for different purposes. An individual would buy it to start saving for retirement. A big company may invest in it as a portfolio for a major client, while others choose to invest to gain short or long term goals. 

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The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.