What are the advantages of mutual funds
If you are an investor who does not have spare time to keep a close watch on market trends and thereby purchase stocks, you should consider mutual funds investment. There are several advantages that a mutual fund can offer. That is why many investors who do not want to be bothered about the intricacies of the stock market find it convenient to invest in mutual funds.
Some of the key advantages of investing in mutual funds are the following.
- A well-diversified portfolio – If you buy a single company or industry stock, you are more likely to have a higher risk factor. But with mutual funds, where the fund manager invests in a host of different domains will have your investment’s risk reduced. Thus, by just investing in mutual funds you will avoid a single portfolio of potential disaster. A diversified portfolio, for instance covering health and industrial sector, will balance the safety of your investment. Not only your fund will be safer but also you will have more chances of a stable return.
- Reduced transaction cost – Whenever you buy stocks there is a transaction fee that you incur. So when you buy one share then you pay a transaction fee, if you want to buy another one or several more then you would incur a transaction fee for each such purchases. This can result in huge, unnecessary spending. With a mutual fund, though your investment will be diversified, you will only have to pay for one transaction fee.
- Access to greater price investment – If you have been saving up to invest in one stock alone, then it might end up to be a gamble if not properly invested. But in a mutual fund, the fund house invests on your behalf. They keep their portfolio diversified and invest in many companies. It keeps your investment secure and you also get an opportunity to have a share in higher-priced stocks. Thereby allowing you to make more profit but in a comparatively stable environment as rest of your investment is distributed elsewhere.
- Opportunity to liquidate – Not all investors are immune to a financial crisis. In case you are met with an unfortunate event where you need to liquidate your investment, unlike stocks, mutual funds offer you greater flexibility. You may or may not need to pay a fee for not fulfilling term requirements. the best time to liquidate a mutual fund is after the day of trading is over and the price has been calculated. Unlike in stocks where the calculations go on throughout the day.
- Professional approach – The fund house you are investing with comes with a manager who is investing on your behalf. They have a professional approach and are quite the experts in their field. If you want to invest in stocks then hiring a professional manager will be your responsibility and it will cost you a lot. When investing in mutual funds, it is the house who does the transaction for you, keeping your best interest in mind.
- Choose based on your risk-appetite – While choosing a fund house. Look at its past performance. Also, be mindful on how aligned your risk intakes are. Closely follow the performance and dynamics of the fund house of your preference. There are plenty of fund houses you can choose from. Thus, make your decision after reading all the relevant information. If there is anything you are not sure about, contact the fund house to know more. A good brokerage will be more than happy to help with your queries.
Every individual should make a detailed investment plan. Depending on the individual’s risk appetite, spare time and investment goals, some amount should be invested in equities and bonds. However, mutual funds would meet the needs of most investors. It is simple to invest in mutual funds online. For instance, you can log in to your account at Kotak securities, select the scheme you find most suitable. Also, mention the amount you would like to invest. You must have your Demat account created before buying mutual funds and also make sure you fulfil all KYC requirements.
