5 Important Advantages of Investing in Mutual Funds against Investing in Shares.
Wondering where you should invest your money? Read on to find out more about the utmost benefits of investing in mutual funds versus directly investing in shares.
Risk Diversification - Mutual funds are managed by professional fund managers, making it more efficient, as they help you to invest in a diversified portfolio across different sectors. It helps you to diversify your risk by investing in mutual funds. Investors can buy units of a diversified equity fund for as low as Rs 500 for ELSS funds. Whereas, directly investing in stocks for a diversified portfolio would demand a larger capital.
Tax Efficiency – Income generated by the mutual fund through investments, either in capital gains (short term or long term), dividends or interests is exempted from income tax. Investors in the higher tax bracket are taxed at 20% with indexation for debt fund long-term capital gain. Once indexation (due to inflation) is long-term, the capital gains tax is reduced reasonably. That's why investing in mutual funds is effectively more advantageous than investing directly in shares.
The variety of products - Other than equity funds, there are income funds, balanced funds, monthly income plans and liquid funds. Mutual funds proffer investors these range of products to suit their risk profiles and investment objectives.
Various modes of investment - Mutual funds provide investors an option in terms of modes of investment and withdrawal. The various investment options are lump sum (one time), Systematic Investment Plans (SIPs), systematic transfer plans, allowing you to choose amongst many options.
Disciplined Investing - Mutual funds encourage investors to invest for a long time, which is beneficial at creating wealth. Systematic Investment Plans helps investors to maintain a disciplined approach to savings and investment. Considering that the share prices are constantly fluctuating, and can induce the direct investors to buy or sell in short time periods, this practice more often leads direct investors to incur losses.
Conclusion – In this article, we have discussed the utmost benefits of investing in mutual funds against directly investing in shares, especially for the first-time investors. The benefits of investing in Mutual Funds are way more strategic, well planned, and they definitely outweigh that of investing directly in shares.