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Why are mutual funds the best choice for investment?

March 11, 2024

Why are mutual funds the best choice for investment?


What are Mutual Funds?

A mutual fund is a financial entity that pools the money of several individuals and invests it in various financial securities, such as equities and bonds.

Mutual funds are managed by Asset Management Companies (AMCs).

AMCs designate fund managers to manage the fund’s schemes and ensure that the investment objectives are met.

There are different avenues of investment, but mutual funds are the best choice for investment for the following reasons:

1] Transparency

There is utmost transparency in mutual funds investment. You get in detailed account statement about your invested amount and allotted assets.

Besides these, investors can also check the Asset Under Management (AUM), fund manager credentials and qualifications.

The Mutual funds’ are labelled with different colour codings for the indication purpose to investors. Blue, yellow and brown are the colour indications which indicate low, medium and high risk accordingly.

2] Variety of products

Mutual funds have various products that can suit investors’ choices as per their risk profiling and investment objectives. For different kinds of investment requirements, there is a range of availabilities for investors: Equity funds, Debt funds, Hybrid funds, liquid funds, and tax-saving schemes.

3] Variety of Modes

There is also a variety of modes available for investors:

Lumpsum
SIP – Systematic Investment Planning
STP – Systematic Transfer Plans
SWP – Systematic Withdrawal Plans

4] Well Regulated

To protect the interest of investors, mutual funds are well-regulated by the Securities and Exchange Board of India (SEBI); also, their operations are regularly monitored by them.

5] Liquidity

The best benefit of mutual funds is that there is flexibility for the investor to redeem the funds at any point in time. However, the investor needs to check the exit load and pre-exit penalty to avoid high penalties during the redemption period.

Get comprehensive knowledge about mutual funds and entirely about the banking, financial Services and Insurances (BFSI) sector from Thadomal Shahani Centre for Management’s Certificate in Banking and Financial Services (CBFS)

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