In the current financial market, mutual funds (MF) are one of the most regarded and recommended investment vehicles by financial experts. Mutual funds hold numero-uno position in investors’ choice based on various criteria such as security, rate of return, ease of management, etc.
Some factors which support the decision of investing in mutual funds are:
- Diversification: MF diversifies your money into different range of assets or securities based on your risk-tolerance. This diversification provides a cushion to your portfolio against inflation and prevents your portfolio’s purchasing power to plummet. Diversification also provides higher rate of return for medium and long term investments.
- Low fund investment options: Unlike other stock or capital market, you don’t need to start with a huge investment in mutual funds. You can start investing in MFs with as little as Rs 500 or 1000. Thus, this investment option is the most suitable alternative for young or beginner investors.
- Guided and managed by experts: generally, MFs are managed by experts who constantly gauge the market in terms of its performance, movement, and future prospects. Keeping these factors in mind, they perform trend analysis and adjust your portfolio’s diversification into different securities. At the same time, they also keep you updated about your current portfolio’s standing, future strategy and outlook. This let you free from the burden of management, spending time and energy.
- Privilege of having high liquidity: In need, you can get your open-ended MF liquidated based on the latest NAV values. [the close-ended MFs can be traded in exchanges].
- Tax-efficient: certain range of mutual funds, domestic equity MFs, are tax-exempt and investors do not need to pay tax on their capital gains after the period of 1 year.
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