Definition of Mutual Fund? | Top 13 Benefits of investing

Definition and meaning of mutual fund:

        A Mutual fund is a type of investment provided by a middle-man company between investors and investment markets. The company invests in stocks, bonds, money market and other assets on the behalf of people to maximize their investment under the guidance of a successful fund manager and his team. 
              People who don't have knowledge about the financial markets and don't want to invest their time in studying the market give this money to the fund company which invests in the market and ensures profit on the investment. For eg. fund companies like the HDFC mutual fund, reliance mutual fund, etc.

Benefits of investing in mutual funds India:

• Risk Diversification- In a mutual fund, your investment is done in different investment markets like stocks, bonds, etc. Unlike the stock market, if any of the markets fail still you can average it out with other investments. So the risk factor is less compared to the stock market.

• Professional managers- The mutual fund companies appoint the best of the talents who have researched the market for years. They know how the market works and can maximize the profit and minimize the loss. These people take care of your funds so that you don't have to worry about your investments.

• Profit on investment- If you are investing in the mutual fund for a longer period you can make a huge profit on your investments. Most of the funds can give you returns in the range of 10%-25%( for some funds it can be more or less than the given figure). Investing in a good mutual fund company can ensure a better return on your investment.

• Nominal charges- Mutual fund companies charge you very less compared to the returns they are giving. You will be charged very less or nominal for all the management of your funds. 

• Tax benefits- You can enjoy tax benefits on some of the funds like ELSS or Equity Linked Savings Scheme. I have written more about it What is ELSS fund?.  Under section 80C returns of up to 1.5 lacs will not be taxed by the government. With a lock-in period of three years and a return of 12-14% its quite a good option for sip investment.

• SIP- It's just like recurring deposit but you will get much more returns compared to Bank FDs. You have the flexibility of choosing the amount you are going to invest every month. SIP gives less return compared to the lump sum.

• Lump sum- In lump sum you are going to invest a certain amount for a longer period. The interest you will be getting keeps on compounding making more profit in a shorter period. I have discussed more sip and lumpsum here Which is better SIP or Lumpsum?.

• No lock-in period- Most mutual funds don't have a lock-in period. You can withdraw it online in 2-3 days without much paperwork. You can withdraw the fund prematurely from locked-in mutual funds without losing your interest, unlike the bank FDs which cause you a lower rate of interest. Though you will be charged a penalty for doing so. Its always good to do some research before investing in mutual funds.

• Safety of your investment- You should know that there are investment options in mutual funds like bank FDs which has lower risk and give a higher return. Debt funds are one of them. Debt fund gives a better return in a shorter period. One more benefit is that if you hold your fund for more than three years you will be taxed less than the bank FDs. Know the basics and investment options in debt funds What are debt mutual funds?.

• SEBI- All your investments are safe thanks to Securities Exchange Board Of India. You can rely on mutual fund companies registered under them. There is a transparency in the performance of mutual funds and you will get to know the performance of your funds and the current valuation of your investment. Read more about SEBI Functions of SEBI.

• Investment varieties- Unlike bank FDs, you can invest in different performing funds and investment markets to get more returns on your investment. You can change from one fund to another without many formalities.

•  Retirement options- If you start investing in mutual funds SIP at a younger age you will be getting a lot of return on your retirement. All this possible on a meager investment of Rs.100 per month. Of all the investment options like PFs, Insurance it can be one of the best performing investment.

• Risk factor- Mutual fund has a risk factor since the investment is done in a volatile market. But the investment is under the constant guidance of professionals and investment is done in a variety of investment markets, the damage to the investment is decreased by a huge amount. 

#All this data is based on mutual funds past performance please be careful before you invest your hard earned money.

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