Professional Management - Investors may lack the time, knowledge, and resources required to conduct
thorough research and purchase individual stocks or bonds. Mutual funds offer the advantage of being
managed by professional money managers who have the expertise, experience, and resources to actively buy,
sell, and monitor investments. Fund managers continuously monitor investments and rebalance portfolios to
meet the scheme's objectives, making portfolio management by professional fund managers one of the most
significant advantages of investing in mutual funds.
Risk Diversification - By investing in mutual funds, investors can easily diversify their investments across
many securities and asset categories such as equity, debt, and gold. This helps to spread the risk and reduce
the impact of market headwinds on a particular security or asset class. Even if one investment in the portfolio
decreases in value, other investments may not be impacted, and may even increase in value, thus reducing the
overall risk of the portfolio. Therefore, risk diversification is one of the most prominent advantages of mutual
fund investing.
Affordability and Convenience - For many investors, purchasing all of the individual securities held by a
single mutual fund could be more expensive than buying mutual fund units. Most mutual funds have a more
affordable minimum initial investment, making it easier for investors to invest small amounts.
Liquidity - Open-ended mutual fund units can be easily redeemed (liquidated) on any business day to meet
financial needs. Upon redemption, the redemption amount is usually credited to the investor's bank account
within one day to 3-4 days, depending on the type of scheme. However, close-ended mutual fund units can
only be redeemed upon maturity, while ELSS units have a 3-year lock-in period before they can be liquidated
Low Cost - Mutual funds offer the advantage of low cost due to their huge economies of scale. Mutual fund
schemes have a low expense ratio, which represents the annual fund operating expenses of a scheme expressed
as a percentage of the fund's daily net assets. The operating expenses include administration, management,
advertising related expenses, etc., and the limits of expense ratio for various types of schemes are specified
under Regulation 52 of SEBI Mutual Fund Regulations, 1996.
Well-Regulated - Mutual funds are regulated by the capital markets regulator, Securities and Exchange Board
of India (SEBI), under SEBI (Mutual Funds) Regulations, 1996. SEBI has laid down stringent rules and
regulations keeping investor protection, transparency with appropriate risk mitigation framework, and fair
valuation principles.
Tax Benefits - Investment in ELSS up to ₹1,50,000 qualifies for tax benefits under section 80C of the Income
Tax Act, 1961. Mutual fund investments are also tax-efficient when held for a longer term.
