Mutual fund is a professional way of investing, portfolio diversification and a regulated investment vehicle.

Advantages of Mutual Funds

1. Professional Management – A mutual fund is managed by full-time, professional money managers who have the expertise, experience and resources to actively buy, sell, and monitor investments unlike individual investor who may not have time or the required knowledge and resources to manage their portfolio.
2. Risk Diversification – Risk Diversification is one of the most prominent advantages of Mutual Funds as money gets invested in multiple choices across equity shares, corporate bonds, government securities, and money market instruments. With diversification, the risk associated with one asset class is countered by the others. An investor in individual capacity may not have sufficient funds to achieve a comparable diversified portfolio.
3. Affordability & Convenience – An investor can get proportionate ownership in a diversified investment portfolio even for a small investment of Rs. 500 in a mutual fund scheme. Mutual fund offers conveniences like the ability to withdraw only part of the money, ability to invest additional amount without any lock in period for most of the schemes, setting up systematic transactions, etc.
4. Liquidity – You can easily redeem (liquidate) units of open-ended mutual fund schemes to meet your financial needs on any business day, so you have easy access to your money. However, please note that units of close-ended mutual fund schemes can be redeemed only on maturity. Likewise, units of ELSS have a 3-year lock-in period and can be liquidated only thereafter.
5. Low Cost – Investing through Mutual fund offers a distinct economic advantage to the investors as the cost related to investment research and office space gets shared across investors, further the large investment corpus and higher transaction volume makes it possible to negotiate better terms with brokers, bankers and other service providers thus mutual fund schemes have relatively low expense ratio.
6. Investment Discipline – Mutual fund offers investment discipline through systematic approaches which is useful for long term wealth creation and protection like invest regularly through Systematic investment plan (SIP), withdraw regularly through Systematic withdrawal plan (SWP) and transfer money between different investment schemes through a Systematic transfer plan (STP).
7. Regulatory comfort – Mutual funds are regulated by Securities and Exchange Board of India (SEBI) in order to safeguard investor’s interest and to promote transparency with appropriate risk mitigation framework.
8. Tax Benefits – Investment in ELSS up to ₹1,50,000 qualifies for tax benefit under section 80C of the Income Tax Act, 1961. Mutual Fund investments when held for a longer term are tax efficient.

Historically equity as an asset class offers the best returns over long term but investments in equity and equity related instruments involve a degree of risk and investors should not invest in the equity schemes unless they are aware off and can afford to take the risk.

The Risk factors involved with Mutual Funds

1. Mutual fund schemes are not guaranteed or Fixed return products
2. Investment in mutual fund involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk, including the possible erosion or loss of principal.
3. As the price/value/interest rates of the securities in which the scheme invests fluctuates, the value of investment in the scheme may increase or decrease.
4. The NAV of the Scheme can be expected to fluctuate with movements in the broader equity and bond markets and may be influenced by factors affecting capital and money markets in general, such as, changes in interest rates, currency exchange rates, changes in governmental policies, taxation, political, economic or other developments and increased volatility in the stock and bond markets.
5. Past performance of the Mutual Fund does not guarantee future performance of the Scheme.
6. The name of the Scheme does not in any manner indicate either the quality of the Scheme or its future prospects and returns.
7. The Sponsors are not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution made by it towards setting up the Mutual Fund.

Mutual Funds are ideal for investors who

1. lack the knowledge, skill and experience of investing in stock markets directly.
2. want to grow their wealth, but do not have the expertise or time to research the stock market.
3. Cannot afford the professional fees of a qualified Fund Manager to build and manage their individual portfolio.

The main advantage of investing through mutual funds are that you can invest in a variety of securities for a relatively low cost and leave the investment decisions to a professional manager which increases the probability of Higher returns at a lower Risk.