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Mutual funds are a type of financial investment made by a pool of money collected by investors. Investors invest in securities like company shares, bonds, and other assets. Mutual fund companies carefully allocate these funds in different securities, which help investors grow their wealth.

The capital gains from mutual funds depend on the performance of the securities that investors choose to buy. Another factor that determines the value of the securities is their market value. Mutual funds can be high-risk investments. However, the returns are generally more significant than any other investment plan. Mutual funds have both advantages and disadvantages.

Some advantages of mutual funds are as follows-

1)Diversification

When you invest in mutual funds, your fund manager will invest your money in different securities such as stocks, debt funds, equity and many other market instruments. As a result, the value of an investment may not rise in tandem. When the value of a particular asset rises, the value of other assets fall. It means that the portfolio’s overall performance has a lesser chance of being subject to market volatility. In addition, diversification reduces the risk of building a portfolio, thereby reducing the investor’s risk in general. 

2)Liquidity

Another benefit of mutual funds is liquidity. Mutual funds are classified as liquid investments, which means that the investor can liquidate or encash their holdings at any point in time. Mutual funds have flexible withdrawal, unlike fixed deposits, but some factors like pre-entry and exit load should be considered before making any moves. Mutual funds give you the freedom to withdraw your money whenever you want. Apart from that, the funds are well integrated into the baking system, which means that money will be deposited into your account directly. 

3)Expert Management 

Investments come with market risks and require prior professional knowledge. A novice investor may not know how and where to invest. Here’s where having an expert guiding your investments comes in handy. The experts create the pool of money and invest in securities to incur profit. They then keep a close watch on the timely exit and entry and take care of the challenges that occur. Fund managers at WinNest have been in the business for a long time and are well seasoned in the art of investing in the right place. 

4)Invest in small amounts 

A lucrative component of mutual funds is the Systematic Investment Plan(SIP) and Equity-Linked Saving Schemes(ELSS). SIPs allow one to invest in small and regular intervals. On the other hand, ELSS enables investors to gain maximum benefit under 80c of the income tax act, thereby allowing the investor to attain profit from a tax exemption of 1.50 lacs. Investors do need to invest in large amounts; they can invest as per the cash flow position. SIPs allow you to invest small amounts on a monthly or quarterly basis according to your convenience. 

5)Safety and Transparency

SEBI has introduced a set of guidelines under which all mutual fund schemes are labelled. It helps you align your investments against the risks involved. In addition, the mutual fund schemes have an easy to understand colour-code. 

The colour-coding scheme uses three colours to indicate different levels of risk-

• Blue indicates low risk
• Yellow indicates medium risk, and
• Brown indicates high risk

Investors can also verify the credentials of the fund manager, their years of experience, qualifications, solvency details of the fund house and AUM.

SEBI makes sure that investors stay updated on the information regarding market schemes and newly introduced policies.

6)Helps in battling inflation 

An investor shields their investment from the wrath of inflation with mutual funds. Mutual funds are an ideal option to hold on to your savings for the long-term while also subjecting them to inflation-adjusted growth. This reduces the possibility of devaluation of the purchasing power of your hard-earned money. By investing in SIPs, we counter the power of inflation with the power of compounding.

7)Lowest lock-in period

Tax saving mutual funds have the lowest lock-in period, i.e., three years. It is less in comparison to FD, PPF or ULIPs. Moreover, you can prolong your investment even after the completion of the lock-in period, which is an added perk.

8)Best tax saving option

Mutual funds are considered one of the best tax saving options. ELSS mutual funds have a tax exemption of 1.5 lacs per year under 80c of the Income Tax Act. All other mutual funds are based on the type of investment and the tenure of investment.

ELSS tax saving mutual funds can deliver higher returns than other tax saving instruments. WinNest closely analyses every aspect of mutual funds investment before making an investment decision.

To know more about mutual funds, email us at connect@winnest.in or visit our website https://winnest.in