Access to professional money managers - Your money is managed by experienced fund managers using advanced scientific and mathematical techniques.
Diversification -Mutual funds aim to reduce the volatility of returns through diversification by investing in a number of companies across a broad section of industries and sectors. It prevents an investor from putting "all eggs in one basket". This inherently minimizes risk. Thus with a small investible surplus, an investor can achieve diversification that would have otherwise not been possible.
Liquidity - Open-ended mutual funds are priced daily and are always willing to buy back units from investors. This means that investors can sell their holdings in mutual fund investments anytime without worrying about finding a buyer at the right price. In the case of other investment avenues such as stocks and bonds, buyers are not necessarily available and therefore these investment avenues are less liquid compared to open-ended schemes of mutual funds.
Low transaction costs - Since mutual funds are a pool of money for many investors, the amount of investment made in securities is large. This, therefore, results in paying lower brokerage due to economies of scale.
Well-regulated industry - All the mutual funds are registered with SEBI and they function under strict regulations designed to protect the interests of investors.
The convenience of small investments: Under normal circumstances, an individual investor would not be able to diversify his investments (and thus minimize risk) across a wide array of securities due to the small size of his investments and inherently higher transaction costs. A mutual fund, on the other hand, allows even individual investors to hold a diversified array of securities due to the fact that it invests in a portfolio of stocks. A mutual fund, therefore, permits risk diversification without an investor having to invest large amounts of money.
Transparency - Prices of open ended mutual funds are declared daily. Regular updates on the value of your investment are available. The portfolio is also disclosed regularly with the fund manager's investment strategy and outlook.
Tax Efficiency*
Equity Funds:
Currently, dividends are tax-free in the hands of the investor. There is no distribution tax payable by a Mutual Fund on dividends distributed. There is no tax deduction at source on dividends as well. Investments for over 12 months qualify for long-term capital gains, which are currently, exempt from tax. Moreover, for investors, there is no TDS on redemption of the units in case they are “resident” under the Indian Income Tax Act, 1961(“the Act”). Securities Transaction Tax is applicable on redemption of equity fund investments.
Debt Funds: Currently, dividends are tax-free in the hands of the investor. However, there is distribution tax together with surcharge and education cess, as may be applicable, payable by the Mutual Fund on dividends distributed. There is no tax deduction at source on dividends as well. Investments for over 12 months qualify for long-term capital gains. For investors, there is no TDS on redemption of the units in case they are “resident” under the Indian Income Tax Act, 1961(“the Act”).