What are the advantages of investing in a mutual fund over stocks

What are the advantages of investing in a mutual fund over stocks
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We all work tough to earn regular earnings and save some funds as well. But we’re sure you also want to build your wealth and accomplish your monetary goals.Investing in a mutual fund over stocks can get your dream fulfilled.

The correct way to go about it is to put in your money in right financial instruments.Mutual fund over stocks can be a good option.

so that your money can earn extra money for you!  

Let’s take an example you make a decision to invest in the stock market.

There are hundreds of companies to decide from and buying stocks or shares of even one company requires a lot of deep level research and thoughts such as understanding the working of the company.

Its financial position, performance of the stock market, etc. That too, supercilious that you can understand all the financial terminology as your lack of in-depth awareness to make suitable investment decisions may hamper your decision making.

To handle your risk, you will have to to buy stocks of different companies and other types of securities to expand within and across asset classes. You may find it hard to handle your portfolio as you will need to track several companies, and other asset classes. Some investments may even need significant investment outlay, which you may find difficult to fulfil.

As a result, you need investment vehicles that can help you in accessing the right grouping of stocks and securities to expand your portfolio, while also being easy to manage.Mutual fund over stocks can be a good option.

Mutual funds help the individual investor defeat all these issues. These investment products merge different instruments such as stocks, bonds or both into a single product. These products are researched and managed by specialists in asset management companies called fund managers and these fund managers in turn are supported by dedicated research analyst. Being wholesale or large investors, mutual funds also cut the cost of investing since fund managers are able to negotiate much lower collective transaction fees (brokerage), as against an investor buying multiple stocks individually.

Here are some important advantages offered by mutual fund over stocks:

  1. Offers liquidity: Mutual fund investments are extremely liquid. They can be easily encased within a short period of time (usually within two working days). Investors can thus settle their holdings whenever required.
  2. Reduced costs due to economies of scale: Buying a mutual fund  that invests in the same 20 stocks  helps negate this issue, because now these transaction costs get  divided among all other investors in that fund, along with you. This advantage of economies of scale is yet another advantage of investing in mutual funds.
  3. Low transaction cost:  Investing in mutual over stocks fund helps reduce transaction cost. For example, if you had gone to a stock broker or an online platform to buy 20 different stocks, you would have to pay individual transaction costs for each of those 20 purchases, which will end up meaning more money lost, to you. 
  4. Access to high priced investments: Mutual funds also let you to own high valued stocks that you may not be able to buy easily, particularly if you’re just starting off or want to invest a small sum of money. This is because when you buy a mutual fund, you do not need to own stocks in full units, even fractional ownership becomes feasible.
  5. Expert fund management: Mutual funds make it easy for you to supervise your money as you get the services of skilled and knowledgeable professionals who make investment decisions on the basis of strong research and constant monitoring of investments. So when you invest in mutual funds, you can be at peace, knowing that the professional are working hard to manage your money.
  • Offers in built diversification and asset distribution: Mutual funds are diversified by their very nature and since they hold assets across sectors and companies, investors are not bare to lopsided risks arising from investment in just one type of securities.
  • Easy to buy and sell: Mutual funds are very easy products and are easy to invest your money in. Anybody can set up a mutual fund account online or through the conventional route using a broker, with less paperwork. You can then buy units online or even over the phone!
  • Affordable investments: Investment in mutual funds does not require a large amount. You can start with as small as Rs. 500. Once you begin investing, you can boost your investment amounts steadily, as you gain more self-confidence or as your salary increases with time. Moreover, you  have the alternative to either invest via lump sum or set up automatic investments, known as Systematic Investment Plans or SIPs – where a certain sum of money gets automatically invested at regular intervals (monthly, quarterly or semi – annually), from your bank into a mutual fund product of your choice.
  • Chance to earn handsome profits: Mutual funds are market connected instruments, even with a small investment, when the bull runs and the market soars, you can earn attractive profits. This also makes them a great instrument to help you deal with increasing prices, or inflation. For example, when you buy an equity mutual fund, you are basically investing in stocks indirectly and with the rise in markets, you can benefit from the appreciation in the price of equities.
  • Potential to earn tax efficient profits: If you invest in a mutual fund over stocks for a period longer than one year, the profits earned are not taxed. Dividends earned on your mutual fund investments are also tax-free in your hands. In addition to this, you also get a tax deduction on Equity Linked Saving Schemes (ELSS) under section 80 C of the Income Tax Act of 1961. You can invest up to Rs 1,50,000 in an ELSS from your taxable income to reduce your tax liability.

So all you need to do is invest in mutual funds and relax ! As now you are aware of why you should invest in mutual fund over stocks

Also read  : RERA ACT : 10 Vital benifits of RERA Act for home buyers

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