A mutual fund is a pool of money managed by a professional Fund Manager.
It collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities. The income / gains generated from this collective investment is distributed proportionately amongst the investors after deducting applicable expenses and levies.
A Diversified Portfolio:
The primary benefit of investing in a mutual fund is that you get exposure to a variety of shares. For example, if you wanted to invest Rs. 1,000 directly in stocks, you would probably get only a share or two. But when you invested through a mutual fund, you would get a basket of several stocks for the same amount.
If a few securities in a portfolio don’t perform, the others compensate. In this way, mutual funds ensure diversification. If you don’t know much about stocks, go for mutual funds.
You can Invest in Small Amounts:
You can begin a SIP with Rs 500 a month. Here you don’t have to wait for a big amount to make investments. You can start with small investments.
Tax Benefits:
Equity Linked Saving Scheme (ELSS), offers both high returns and tax benefits. It is a mutual fund plan that is tax-exempt up to Rs. 1.5 Lakh under Section 80C of the Income Tax Act, 1961. It comes with a lock-in period of 3 years that is lower than any of its alternatives, like fixed deposits and PPF.
Good Returns:
Mutual funds offer good returns on investment and have the potential to build capital over time while beating inflation. Also, with SIPs (Systematic Investment Plans), you can invest small amounts periodically for a few years instead of a lump sum. You purchase fewer units when the unit price of the fund is high, and more when the price is down, has a higher return on investment.
