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Advantages And Disadvantages of Mutual Funds Investing

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Advantages And Disadvantages of Mutual Funds Investing

Advantages And Disadvantages of Mutual Funds Investing

National Institute of Wall Street 7 Jul 2022

Generating savings or plans of investing have different kinds of benefits. Short and long-term plans of investment can be made by an individual. Because of the risk management, there are various investors you would like to invest in mutual funds. But for every investor, before investing in mutual funds, it is mandatory to know about the advantages and disadvantages of mutual funds. In this blog, one will get complete information about the advantages and disadvantages of mutual funds

What Are Mutual Funds?

A mutual fund contains the money pooled from various investors. A dedicated and professional fund manager invests the pooled money in different investment securities in each type of mutual fund scheme. Investing securities can be silver, gold, stocks, bonds, treasury bills and commercial papers. 

Investing in mutual funds is done based on different classified securities. Hybrid funds, equity and debts are the most prominent of all the types of securities. In stocks or shares, equity funds invest their money, and in the case of debt, the money is invested in fixed-income securities. But in the case of hybrid funds, cash is invested in different proportions in both stocks a d fixed income securities. 

However, choosing from these types all depends on the investor's choice and objective. 

Advantages of Mutual Funds 

Below the complete list of the advantages of mutual funds is given. Learn about the advantages of mutual funds in this article and then take the decision of investing in mutual funds as per your comfort. Perhaps, after reading this article, if you have confusion or some questions which have to ask, then you can visit at Stock Market Institute In Delhi, and under the guidance of experts, you can solve your every query.

By Assets Managers Mutual Funds Are Managed Professionally. 

In India, the fund house hires assets managers or fund managers who help to manage the mutual funds. These managers perform sound research and find the right stocks where an individual can generate profit by investing his money. 

Through Diversification, The Risk Can be Minimized

In multiple sectors of shares or stocks, the money is invested in the case of mutual funds. By diversification, the loss in one asset class can be minimized by profit earning in another. 

Liquidity 

The most overlooked advantage of mutual fund investing is liquidity. Buying and selling of mutual funds can quickly be done during market hours. That's why it is considered highly liquid. Funds like ELSS are not highly liquid as there is a need to invest in some specific lock-in period. 

Mutual Are Low in Cost 

An individual can invest with a minimal amount in mutual funds. 1% to 2.5% is the fund manager's fee in India. With the advantage of the low cost of investment, one can make higher returns if one stays for the long term. Returns growth is based on the amount grown at the given time frame. 

Advantages of TAX Benefits 

Individuals can benefit from tax savings if they invest in mutual funds via the equity market. Up to Rs 1.80 lakh, the investment made in ELSS is free from tax as per the government's section 80C

East To Afford Mutual Funds

Individuals can start investing in mutual funds with a minimum amount of Rs 500. Hence one can opt for SIP or the lump sump method of investing in mutual funds as per their convenience and comfort. 

Safe And Transparent 

Investing in mutual funds comes with high transparency. All companies need to work under the guidance of SEBI by following its rules and regulations. Hence every disclosure is made by them. 

Disadvantages of Mutual Funds 

Below the complete list of the disadvantages of mutual funds is given. Also be aware of the disadvantages of mutual funds, avoiding the disadvantages of mutual can increase the chances of loss. 

Cost

In the above section, we mentioned cost as an advantage and disadvantage. In India, there are some mutual funds which associate with higher prices. Sometimes you have to pay extra charges as a penalty if they exit from mutual funds before the predetermined time. Perhaps before the given or predetermined time, money withdrawal is not possible. 

Diversification of Funds 

Through diversification, you can prevent the chances of loss, but on the other hand, it can be proven as a disadvantage as it prevents the options of earning profits. Various sectors can generate huge profits; not investing in them can be a significant loss for you. 

Locked in Period 

The worst disadvantage of mutual fund investing is a lock-in period. Before completion of a given predetermined time, it becomes difficult to withdraw your invested amount. Hence, converting your money into liquidity during an emergency becomes quite challenging. 

Fluctuating Returns 

Based on market conditions, the returns on mutual funds have fluctuated. Hence returns are not fixed while investing in mutual funds. However, investors must be aware of its risks before diving into mutual funds. 

Key Take-Aways 

  • With a small amount of Rs 500, mutual funds can be invested. 
  • Based on your budget, money can be supported via systematic investment plans (SIP), daily, weekly and monthly.
  • On your behalf investment manager will manage your portfolio and make the right decision for the investment 
  • As per section 80 C of the government, investing up to Rs 1.5 lakh in mutual funds is tax-free.
  • Before predetermined selling, you need to pay the exit load amount 
  • Returns in mutual funds are not fixed and guaranteed. It all depends on the market condition 
  • If you invest in mutual funds with some specific lock-in period, withdrawal money is not possible before the given time. The duration of the lock-in period can be three years also.

Perhaps it doesn't seem very easy to choose the right investment type, or after selecting the investment, if it's challenging to find where to start, then join Stock Market Course In Delhi at NIWS and learn how to invest in the right investment type. At NIWS, the experts will guide you and teach you how you can make the right decisions on your investment path, which makes the track hurdles free. 


 

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