Mutual funds are a popular investment option available in India and they have been growing more and more popular as compared to traditional investment routes such as bank fixed deposits, PPF, VPF, EPF etc. In recent times, the old school investment options have witnessed a fall in ROI, which makes them less lucrative and this seems to be one of the prime reasons why interest in mutual funds has grown significantly in the past couple of years.
Some of the popular mutual fund AMC currently operating in India include SBI Mutual Fund, DSP BlackRock Mutual Fund, UTI Mutual Fund, ICICI Prudential Mutual Fund, Reliance Mutual Fund and others. The following are some of the key advantages of investing in mutual funds:
Diversified Portfolio
In case of share trading, an individual investor is limited by the funds at his/her disposal, this limitation is not applicable to mutual funds. Mutual funds, as a rule, have a much larger pool of capital as there are multiple investors are contributing into the scheme simultaneously. With this substantially larger pool of capital available at the disposal of the mutual fund management team, they can significantly increase the diversity of their holdings irrespective of market capitalization or sector in which the fund is invested. For example, the equity mutual fund from UTI Mutual Fund includes investments in multiple companies including TCS, HDFC Bank, Gujarat Petronet, Sun Pharmaceuticals, Tech Mahindra, Maruti Suzuki India and others to ensure a diverse portfolio. Similarly, Axis Long Term Equity Fund is invested in various companies including TTK Prestige, HDFC, Kotak Mahindra, Cummins India, Motherson Sumi, Nestlé India etc.
Professional Management
The pool of money available to a mutual fund is managed by a professional funds manager supported by a fund management team. The fund managers as well as the team are carefully chosen individuals who have key skills and industry experience to help choose the ideal investments to improve the chances of the fund meeting its investment objectives. In case of individual investors, such experience as well as knowledge of how markets work is difficult to come by, hence mutual fund investments are a suitable choice for novice as well as the experienced investors.
Market Linked Returns
In the present scenario, interest rates are being slashed for loans as well as traditional investment avenues such as PPF, EPF, VPF, bank fixed deposits, post office term deposits, etc. This is mainly due to implementation of the MCLR regime across the country. However, this situation does present a significant downside – the majority of these traditional investment avenues are unable to keep pace with the inflation in the economy. This is completely contrary to the way a market-linked mutual fund work. As a result, mutual fund investments are capable of providing much higher returns that are better able to keep pace with the inflation as compared to the traditional investment options mentioned above.
Transparency in Investments
Investments made into mutual funds feature detailed listing of all the holdings of the fund and the details of the portfolio can be checked by the investor at any period of time and any time of the day. This detailed report is available not just from the AMC but also from a variety of third parties such as Value Research and MoneyControl. This further ensures the transparency in dealings whether you are invested with DSP BlackRock Mutual Fund, Reliance Mutual Fund, UTI Mutual Fund, Mahindra Mutual Fund or any other AMC operating in India. The same holds true for valuations, the net asset value (NAV) of mutual funds changes every day the stock market operates and the investor can easily get a valuation of his/her holdings on a daily basis from the AMC. The availability of such transparency ensures that the investor is able to make an informed decision regarding buying, redeeming or switching his/her current investment in order to maximize the ROI.
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