Advantages And Benefits of Mutual Funds in India

by Alina Khan

Published On Nov. 7, 2023

In this article

Investing your hard-earned money wisely is a crucial step toward achieving your financial goals. In India, where the investment landscape is diverse and ever-evolving, mutual funds have emerged as a popular choice for investors seeking growth and stability. Mutual funds offer a host of advantages and benefits that make them an attractive investment option for both seasoned investors and beginners alike. In this comprehensive guide, we will explore the various advantages and benefits of mutual funds.

1. Diversification:

One of the primary advantages of investing in mutual funds is diversification. Mutual funds pool money from multiple investors and invest it in a diversified portfolio of stocks, bonds, or other assets. This diversification spreads the risk across various securities, reducing the impact of poor performance in any single investment. For instance, if you were to invest directly in individual stocks, your risk would be significantly higher compared to investing in a mutual fund.

To learn more about diversification, read our detailed article: Diversification in Mutual Funds: Building a Resilient Investment Portfolio

2. Professional Management:

Mutual funds are managed by experienced fund managers who make investment decisions on behalf of investors. These fund managers have access to extensive research and resources, allowing them to make informed investment choices. Their expertise can be particularly beneficial in navigating the complex and ever-changing Indian financial markets. Investors benefit from the professional management of their funds without having to actively monitor and manage their investments.

3. Liquidity:

In India, mutual funds offer high liquidity, making it easy for investors to buy and sell units at the prevailing Net Asset Value (NAV). This liquidity provides investors with the flexibility to access their funds when needed, making mutual funds a suitable choice for both short-term and long-term financial goals.

4. Affordability:

Mutual funds offer affordability and accessibility to a wide range of investors. With investment options starting as low as ₹500, mutual funds make it possible for individuals with modest savings to participate in the capital markets and benefit from professional management.

5. Tax Efficiency:

Tax benefits are a significant advantage of investing in mutual funds in India. Equity-oriented mutual funds held for more than one year qualify for long-term capital gains tax exemption. Additionally, investors can benefit from deductions under Section 80C of the Income Tax Act by investing in Equity Linked Savings Schemes (ELSS), a type of mutual fund.

6. Transparency:

Mutual funds in India are highly regulated, and fund houses are required to provide detailed information about their schemes, including portfolio holdings, performance history, and expenses. This transparency enables investors to make informed decisions and monitor the performance of their investments.

7. Systematic Investment Plans (SIPs):

Systematic Investment Plans (SIPs) allow investors to invest a fixed amount regularly at predefined intervals. SIPs make it convenient for investors to save and invest systematically, promoting financial discipline. They also harness the power of compounding by investing regularly over time.

What is SIP in Mutual Funds? An Experts Guide

8. Flexibility of Investment Choices:

Mutual funds in India offer a wide range of investment options to cater to different risk appetites and financial goals. Whether you prefer equity, debt, hybrid, or thematic funds, there is a mutual fund suitable for your investment needs.

9. Dividend Options:

Many mutual funds in India offer dividend payout and dividend reinvestment options. Investors looking for regular income can opt for dividend payout, while those seeking capital appreciation can reinvest the dividends to benefit from the power of compounding.

10. Accessibility to Global Markets:

Some mutual funds in India provide exposure to international markets, allowing investors to diversify their portfolios globally. This provides an opportunity to benefit from the growth potential of global economies.

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11. Wealth Creation:

Investing in mutual funds has the potential to create long-term wealth. Over the years, mutual funds have delivered competitive returns, outperforming many traditional investment options like fixed deposits and savings accounts. Historical data shows that equity mutual funds have generated substantial returns over the long term, making them an attractive option for wealth creation.

12. SIP Calculator and Tools:

To make informed investment decisions, investors can use SIP calculators and other online tools offered by mutual fund companies and financial websites. These tools help investors estimate potential returns based on their investment amount and tenure.

13. Convenience and Ease of Investment:

Investing in mutual funds is hassle-free. Investors can start investing online, making it convenient to manage their portfolios from the comfort of their homes. Many mutual fund platforms offer mobile apps, making it even easier to monitor investments on the go.

14. Risk Management:

Investing in mutual funds allows investors to choose funds that align with their risk tolerance. Conservative investors can opt for debt funds, which are relatively less volatile, while those with a higher risk appetite can invest in equity funds to potentially earn higher returns.

Read our detailed article on The Crucial Role of Risk Profiling in Mutual Fund Investments . And get your risk profiling for free, to understand your risk tolerance and risk capacity levels.

15. Regular Monitoring and Updates:

Mutual fund investors receive regular updates on their investments, including NAV updates, fund performance reports, and periodic statements. This keeps investors informed about the progress of their investments.

16. Systematic Withdrawal Plans (SWPs):

For investors looking to create a source of regular income during retirement or other financial goals, systematic withdrawal plans (SWPs) allow them to withdraw a fixed amount at regular intervals while keeping the principal invested.

17. SIP Top-Up Facility:

Investors can increase their SIP investments systematically over time through the SIP top-up facility. This helps investors align their investments with their increasing income and changing financial goals.

18. Capital Gains Indexation:

Debt mutual funds offer the benefit of indexation for long-term capital gains tax calculations. This helps investors reduce their tax liability and enhance after-tax returns.

19. NFO (New Fund Offer) Opportunities:

Mutual funds often launch new schemes through NFOs, providing investors with the opportunity to invest in unique and innovative funds from the beginning.

20. Exchange-Traded Funds (ETFs):

In addition to traditional mutual funds, India also offers Exchange-Traded Funds (ETFs), which are market-traded funds that represent a diversified portfolio of assets. ETFs combine the benefits of mutual funds with the liquidity and trading flexibility of stocks.

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To Sum Up

Investing in mutual funds in India offers a multitude of advantages and benefits that cater to the diverse financial needs and goals of investors. Whether you are a new investor looking to start small or an experienced investor seeking to diversify your portfolio, mutual funds provide a wide range of options and features that can help you achieve your financial aspirations. However, it's essential to conduct thorough research, assess your risk tolerance, and consult with a financial advisor before making investment decisions to ensure they align with your unique financial situation and objectives. In the ever-evolving financial landscape, mutual funds continue to play a pivotal role in wealth creation and financial security for millions of investors across the country.

Read these articles to understand all about mutual funds and how you can invest in mutual funds with Wright Research:

  1. What is SIP in Mutual Funds? An Experts Guide

  2. The Crucial Role of Risk Profiling in Mutual Fund Investments

  3. How many funds should you have in your Mutual Fund Portfolio?

  4. What is Standard Deviation in Mutual Fund and How Does it Help in Portfolio Management?

  5. Find Out What Portfolio Risk Is & How to Reduce It

  6. Smallcase vs Mutual Fund: Understand Difference and Similarities

  7. SIP Investment Guide: What is SIP, How to Start, Benefits, & Is It Worth It

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