While investing in mutual funds lots of questions arise in our minds. And one of the most common queries comes to our mind is that whether there are any benefits in investing in mutual funds. So, yes there are lots of benefits to investing in mutual funds.
Diversification
Investors enjoy the benefit of asset diversification when they invest in mutual funds. Diversified portfolios invest in a variety of instruments such as bonds, stocks, etc. Having a diversified portfolio increases the chance of earning higher returns while minimizing risk.
Liquidity
One of the main advantages of mutual funds is liquidity, you can redeem any portion of your investments and the money gets credited to your bank account within 2-3 days.
No Lock-in
Unlike traditional investing instruments, mutual funds come with a zero lock-in period. This means you can redeem your investments in a time of extreme need.
Tax efficient
Equity mutual funds are taxed at 10% per annum if held for more than one year and debt mutual funds provide indexation benefits. A post-tax FD rate would be 4.9% whereas a debt mutual fund equivalent would be 6.5% p.a.
Best tax-saving option
Mutual funds provide the best tax-saving options. ELSS (equity-linked saving scheme) Mutual funds have a tax exemption of Rs. 1.5 lakh a year under section 80C of the Income Tax Act.
Lower Cost
In a Mutual fund, funds are collected from many different investors, and then the same is used to purchase securities. Due to the size of the mutual fund, the negotiation is strong and the same is passed on to the investors.
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