Why Should You Invest in Mutual Funds
Mutual Funds are one of the best instruments for making your long term investments. Mutual Fund schemes offer many advantages:
Asset Management Companies (AMC) are managed by professionals and carry out the specialized investment activity. Investing requires different skill sets than you might be having. It requires a hawk like grasp over markets and on the various industries and companies within it. Anybody who has surplus capital to be parked as investments is an investor, but to be a successful investor, you need to have someone managing your money professionally.
Diversifying your portfolio into different asset classes and securities/companies help in reducing risk. If you want to do this on your own, it will take you immense amounts of money and research to do this. Mutual Funds are very convenient instruments for diversifying without putting time or effort yourself. You can choose a fund depending upon your risk, goals and investment style. Examples can be equity diversified Debt, Hybrid, sectoral funds, commodity funds, Fund of funds etc.
Economies of Scale
Mutual funds are able to take advantage of their buying and selling size and thereby reduce transaction costs for investors. As a standard rule there are volume discounts for bulk transactions. This is as true for MF transactions as it is for groceries. If you decide to similar number of transactions on your own the costs will be much higher. The cost of running a mutual fund is also divided between a larger pool of money and hence mutual funds are able to offer you a lower cost alternative of managing your funds.
Mutual funds are typically very liquid investments. Unless they have a pre-specified lock-in, your money will be available to you anytime you want. Typically funds take a couple of days for returning your money to you. Since they are very well integrated with the banking system, most funds can send money directly to your banking account.
Since the Mutual Fund industry is tightly regulated by SEBI (Securities and Exchange Board of India), the chances of an AMC defaulting is almost zero. Sebi forces transparency on the mutual funds, which helps the investor make an informed choice. Sebi requires the mutual funds to disclose their portfolios at least six monthly, which helps you keep track whether the fund is investing in line with its objectives or not.
Through features such as Systematic Investment Plans, Systematic Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience.