Advantages and Disadvantages of Mutual Funds in India

Any method of generating savings or an investment plan has its own benefits. It can be either for the short term or the long term. Investors in India usually want to invest in mutual funds because of their risk management.

In this article, we will learn about the advantages and disadvantages of mutual funds in India. 

Advantages of Mutual Funds in India

The advantages of mutual funds in India have been enumerated below: 

• Mutual Funds are Managed by Asset Managers Professionally

The fund house appoints asset managers, also known as fund managers, to manage the mutual funds in India. These managers understand how to identify the best stocks that can generate maximum profits.

• The Risk Gets Reduced through Diversification

The money in mutual funds is invested in multiple sector stocks. Hence, the loss incurred in one asset class is managed by profit made in another sector or asset class.

• Liquidity

One advantage of mutual funds that is often overlooked is liquidity. Mutual funds can be easily bought and sold in the short term during market hours and, hence, are considered highly liquid. Some funds like ELSS are an exception as they have a specified lock-in period and cannot be easily liquidated.

• Mutual Funds are Low Cost

Mutual funds in India also have low costs. The fund management fees charged by mutual funds are 1%-2.50%. Mutual funds, though low in cost, provide you with higher returns. Returns are calculated based on the amount grown within the given time frame.

• Mutual Funds also Offer Tax Benefits

Investing in mutual funds in India via the equity market can offer you tax benefits. The investments made in ELSS are exempted under Section 80C of the Income Tax Act, up to Rs. 1.5 lakhs.

• Mutual Funds are Affordable

You can start investing in mutual funds from a minimal amount, such as Rs. 500. As per your budget, you can opt for SIP or lumpsum investment.

• Safe and Transparent

Investments in mutual funds are very transparent. All mutual fund companies come under the purview of SEBI and they need to make necessary disclosures.

Value of stocks, the historical performance of the fund, fund manager’s qualification, and track records are known. The NAV (net asset value) of the fund is updated every day. On any mutual fund page like Groww – you can look at the details about the mutual fund.