Many investors prefer investing directly in stocks with through brokers instead of investing in mutual funds. The major reason behind this preference is the fund expense ratio as well as having
However, the majority of
In this article, you will get to learn the key benefits of investing in mutual funds. However, before that, it’s important for you to learn the concept of mutual funds and how they work.
What Are Mutual Funds?
Mutual funds are a financial tool. When different investors invest in a mutual fund, their money is pooled and invested in stocks and bonds. Every investor who is the part of this pool decides his own fund units. These units define his ratio of the holdings of the scheme. Securities are chosen on the basis of the objective of the scheme.
Who Manages Mutual Funds?
Asset Management Companies (AMCs) manage mutual funds.
Benefits Of Mutual Funds For Individual Investors:
01 – Diversification Of Risk:
One of the key benefits of investing in mutual funds is risk diversification. There are three types of risks every stock is subjected to. These risk factors include:
- Company risk
- Sector risk
- Market risk
Company risk and sector risk come under the category of unsystematic risks whereas, market risk comes under the systematic risk category.
Mutual fund risk is much lesser as compared to the individual stock risk. This is because mutual fund investors diversify unsystematic risks. This is done by investing in a wide portfolio of stocks within various sectors.
02 – Smaller Capital Cost:
As mutual funds depend on the pooling of money, mutual fund investors can enjoy the favorable rights over a diversified stock portfolio with considerably smaller capital outlay.
03 – Investment Expertise:
Highly qualified fund managers manage mutual funds. These professionals have years of experience and expertise in choosing the best stocks. Working with these assets managers means that you will get the most profitable risk-adjusted returns.
04 – Reduction In The Transaction Costs:
As mutual funds work by frequently selling and purchasing securities, the cost of transaction per unit is very less as compared to what retail investors incur. This makes investing in mutual funds a much better option than selling shares through stock brokers.
05 – The Diversity Of Schemes:
Mutual funds provide the investors with a wide range of products that match their objectives of investments as well as risk profiles. Along with equity funds, mutual funds offer various schemes to suit your personal investment requirements. These schemes include:
- Balanced funds
- Monthly income plans
- Income funds
- Liquid funds
06 – Various Modes Of Investments:
Mutual funds provide investors the freedom to choose the modes of investment and withdrawal for buying jewelry as per their need. If you wish to receive regular income from your investment, then you can choose the dividend option.
Investing in mutual funds is way better than making individual investments through brokers. There are several benefits that you enjoy when you select this investment option. in order to make the most of your investment, choose to invest in mutual funds.