In mutual funds, the money of many investors is deposited in one place, and from this fund is then invested in the market. Mutual funds are managed by Asset Management Companies (AMC). Each AMC usually has a number of mutual fund schemes.
Mutual funds have always been a preferred choice for investors. Many investors invest in mutual fund schemes to achieve their financial goals. Often, first-time investors do not understand where they should invest and make mistakes. Mutual funds can prove to be a better option for such first-time investors.
Under this, it is important to choose the right scheme so that you can get maximum returns. While Investing in Mutual Funds, you need to keep a few things in mind to make the right decision.
Advantages of mutual funds
We will tell you about the advantages of mutual funds through 5 points so that you can clear all your doubts about mutual funds.
1. Easy to manage:
You can buy and sell any number of mutual funds on any given day. Whereas you cannot buy and sell this bank FD, PPF, or insurance on government holidays or Sundays.
2. Multiple choices:
Mutual funds give you the flexibility to own multiple stocks and bonds with a small investment. Money is not invested in any one of the mutual funds in which you invest. Rather, investments are made at different places so that even if there is a recession in one sector, the profit from the other sector is taken less.
3. Low Fees:
The mutual fund expense ratio usually ranges from 1.5-2.5% of your investment. The expense ratio is the fee that you pay to the AMC for managing your fund (investment). It is less because many people invest in a mutual fund and this fee is discussed among all.
Mutual funds are regulated by the Security Exchange Board of India (SEBI) and their NAV (Net Asset Value) or price is declared on a daily basis. Their portfolio is also announced every month and various information about them is also given to the public.
5. Low cost of investment:
To invest, you only have to pay fees in the form of an expense ratio, which is very less. The expense ratio is around 1 to 2%. Thus a professional fund manager manages your money at a very low cost.
6. Anyone can invest in mutual funds:
You can invest up to a minimum of 500 rupees. Both Indian residents and NRIs can invest in mutual funds. You can also invest in the name of your spouse or children. If your child is a minor (below 18 years), you will need to provide your details while investing in his/her name.
The Disadvantage of Mutual Funds:-
1. Uncertainty of returns
Many investment options available in the market offer you a fixed return. But this is not the case with mutual funds. The profits of Mutual Funds are directly linked to the stock market where there are always ups and downs. The stock market always carries with it the uncertainty of risk. For this reason, the profits of mutual funds also go up and down continuously.
2. Cost of Mutual Fund
To manage the Mutual Fund, some money from your investment goes to the fund house in the form of an Expense Ratio. This cost will seem less to you for a short period of investment but in the long run, it becomes very high.
3. Lower returns than the stock market
As you know that mutual funds are an indirect way of investing in the stock market. If you have good stock market knowledge then you can make much higher returns than mutual funds by investing in the direct stock market.
Mutual fund returns are dwarfed by intelligent stock market returns over the long term. Because of this, mutual funds become a little less attractive.
But if you are an investor who does not have a good knowledge of the stock market, then mutual funds can be the best option for you.
4. Tax on Mutual Fund Returns
Your mutual fund returns are also taxed, which reduces your profits by a few percent.
In equity, you have to pay STCG tax (Short term capital gain) at 15% for less than 12 months and LTCG tax at 10% (Long term capital gain) for 12 or more months.
In this way, investing in mutual funds for a long period of time can result in paying heavy taxes on the maturity amount.
If you are also thinking of investing in mutual funds, then you should understand these disadvantages of mutual funds properly.
5. It is necessary to assess the ability to take risk
Before investing in Mutual Funds, you must assess your risk appetite and investment return expectation. After that choose the right mutual fund scheme through which you can get better returns.
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