Advantages and disadvantages of investing in mutual funds

There has been a steady growth in the mutual fund industry in recent years. Indeed, for the mutual fund industry, the total assets under management (AUM) have increased? 22.86 lakh crore 24.25 lakh crore in June 2018. June 2019, according to data provided by the Mutual Fund Association of India. There are several reasons why mutual funds are so popular among Indians.

Benefits of Mutual Funds

Portfolio diversity

The biggest advantage of investing in mutual funds is portfolio diversification. When you invest in mutual funds, your money is invested in different securities in different sectors. This helps to reduce the associated risk due to the volatile nature of the market. Along with mutual funds, you also have the option to diversify into equity and debt funds.

Tax benefits

Some tax-saving mutual funds, such as the Equity Linked Savings Scheme (ELSS) offer dual benefits. It can provide good returns in the long run and reduce tax deductions. Under Section 80C of the IT Act, investments made in this scheme? Are you eligible for tax benefits? 1.5 lakh. ELSS is one of the best tax saving mutual funds.

Expert management

One key advantage is that you do not have to allocate resources or conduct research on your own. All your investments are managed by an experienced fund manager. Fund managers constantly study to better understand the market and the trends of different companies. Based on your income, risk profile and savings goals; They will invest your money in suitable assets.

Small investment

With Mutual Funds, you have the advantage of investing through SIP. A systematic investment plan allows you to make small regular investments instead of paying a handful. Can you start with as low? 500. It makes their investment much easier. By reducing the risk associated with investing in mutual funds, SIPs give you an average cost advantage of Rs. There are also some tax saving SIP schemes.

Disadvantages of mutual funds

Mutual funds also carry some risks and difficulties.

Management costs

Mutual funds are managed by experienced professionals, but the service comes at a price. A fee is charged for the administration and management of the mutual fund. This fee is known as the expense ratio, and is usually between 0.5% and 1.5%. Expenditure ratio cannot exceed 2.5%.

Market risk

With mutual funds, there is a 15 to 18% chance of earning high returns. However, there is a level of risk associated with them, as they depend on market performance. Therefore, before investing, one must keep in mind that the return on a mutual fund is not guaranteed.

It is best to research well before investing. For example, a tax saver scheme may include a lock-in period. You need more than luck to succeed in affiliate business.