Advantages and Disadvantages of Mutual Funds in India

Have you begun investing? Whether you have or have not - investing and mutual funds go hand in hand. They have become the most prominent thing when we think about investments. Investing allows your money to work for you - does it not? You need to utilize mutual funds if you have not yet. Well, mutual funds are investment tools that let you start just from 100 rupees all the way to how much you can afford to start investing.

Investing in gold or real estate takes up a lot of principal - which is a big deal, and that is not the case with mutual funds. But, you need to know that every coin has two sides, which means so do mutual funds. Here we will talk about the merits and demerits of mutual funds.

Here are the benefits you can enjoy by investing in mutual funds.

1. They are Highly Liquid

Usually, when you invest in real estate or any other property for that matter - it takes years to make a turnover return when you have to sell it for a higher price. But - this is not the case with mutual funds, you see.

Let us take an example to explain this better, shall we?

For instance, you invest in a JM financial mutual fund, and at the same time, you invest in a piece of land. It takes a decade for the land to appreciate and an added few more years to sell it off and make money over that investment. On the other hand, the mutual fund you invested in can be sold anytime, and your profits are higher.

2. You Get that Expert's Guidance

You do not have to sit around and do all of the thinking by yourself. With mutual funds, the fund manager takes over research, analysis, and so much more. He will place the fund right, making sure it gives the best of results. This means you do not have to worry a lot about managing your own fund. You will still own the fund while someone else takes care of it for you.

3. You get the Opportunity to Diversify

Diversification is always the key to better returns. This is more like not putting all of your eggs in one basket. You will not be investing in one sector, one industry, or one type of investment tool. If you have only been investing in gold, you can now start investing in funds.

4. You can start quite small

You have got to understand that investments do not always have to be big, as long as you start - starting is the only thing that matters. With mutual funds, you will not have much to think about since you can start off small. You can enjoy the returns with as little as 100 rupees. You can also choose to invest in SIPs or lumpsum funds - whichever is convenient for you.

5. It is safe

When you are someone with a low-risk appetite - you do not have to worry about it - mutual funds will have your back. Unlike other investments, mutual funds do not always pertain to a specific risk. You can choose mutual funds with either high, low, or even medium risks. All of this depends on your risk appetite and how much you can afford to lose.

6. It is quick and simple

You do not have to travel places or go through tedious procedures to start off with a mutual fund. You can just do it online. All that you will need to do is locate a trusted broker and start investing through their application.

7. They can be a perfect match

Everyone has different financial goals - that is a given. But, mutual fund investments can help you match your goals - that is because they are highly flexible. Mutual funds can be long-term, short-term, low returns with low risks and high returns with high risks., etc.

8. It is Tax Efficient

Mutual fund investments do have a set of Income-tax sections that let you enjoy tax benefits on your earnings.

Now that you know about the perks of a mutual fund, it is only fair if you also know the downsides of it. So, here they are.

Disadvantages of Mutual Fund Investments

1. The returns fluctuate

The returns will fluctuate, whether you like it or not. Mutual funds do not give you a fixed return like a bank FD or post office scheme. This is why you need to make informed decisions.

2. You will have no control of your fund

Now, you might be thinking - this is an advantage as mentioned above. But it can also be a demerit. You need to know that at times while it is good that someone else takes care of your fund. You also have to know that you will not have a say in the fund, but the fund manager will.

3. Operating Costs

While someone else manages your fund, you will have trouble with the expenses incurred because of that. There will be exit loads, managing costs, and much more involved in mutual fund investment.

4. Past Performance give misconceptions

The past performance of a fund only leaves it with a lot of misconceptions. When a fund has performed well in the past - there is no guarantee that it will perform well in the future too, which leaves a lot of people with confusion and sometimes bad decisions.

Conclusion

It is best you hear two sides of the story - it gives you a better perspective and higher decision-making ability, and this article does this for you.