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Benefits of Investing in Mutual Fund

A country like India has multiple investment options. The stock market is one of the best major ecosystems for investors. Investing in the stock market is not easy for everyone; it requires in-depth knowledge and the ability to analyse stocks. Similarly, people who lack proper knowledge choose the traditional method of investing, for example, A lot of people make fixed deposits in the bank. FD in the bank is less risky as compared to any other available investment, but they give very less return, sometimes it can't beat inflation. In this situation, a mutual fund seems like the best solution for all the above doubts.

In the previous article, we have given information about the technical concept of mutual funds which is NAV. We have seen how NAV is calculated, and its role in mutual funds. In this article, we will see information about the benefits of mutual fund investing, and compare them with another available investment method. https://www.finshak.com/blog/what-is-nav-in-mutual-fund

What is a Mutual Fund?

A Mutual fund is a financial product that pools money from multiple investors to create a large fund that is managed by professional fund managers. This pooled money is then used to invest in various securities, such as Stocks, Bonds, and other Assets etc.

Benefits of investing in Mutual Funds:

 Diversification of Investment :

• If you invest money into a single stock of the company.it carries high risk, instead of this fund manager diversifies the portfolio into different stocks or sectors. 

• Also, diversification helps to smooth out the ups and downs of the market, which is particularly important in the volatile Indian stock market. 

• Most of the fund diversifies its portfolio toward fixed-income schemes. 

Example: debt fund. 

Also, diversification helps to capture the rally in a particular sector.

 Role of Fund Manager:

• Role of the Fund manager plays a crucial role in the diversification of the portfolio. It is a single person or group of people created by mutual fund companies.
• Fund managers minimize risk, and make an investment decision.

 Liquidity:

• A mutual fund is more liquid than any other traditional method of investing. Example: fixed deposit debts are locked for a certain period.
• We can buy mutual fund units on any day but it can require a few days to complete the redemption process.

 Flexibility:

• Mutual funds provide flexibility to the investor. There are multiple funds available.

 Ex. Equity Fund, Bond Fund, Debt Fund etc.

• We can choose any fund based on the market sentiment, for example. If the government makes a lot of improvisation in the defence sector you can go for a Defense Mutual Fund.
• If you need money urgently then you can redeem your units easily . and withdraw money from your bank account within a few days.

 Affordability:

• Mutual Funds are more affordable as compared to any other traditional investment.
• You can start from 500 Rs. through a systematic investment plan (SIP). SIP helps to make regular investments, it leads to becoming a disciplined investor. 

 Tax Advantages:

• Mutual funds, particularly equity-linked savings schemes (ELSS), offer tax advantages under Section 80C of the Income Tax Act in India.
• ELSS funds are designed to provide tax-saving opportunities along with the potential for high returns. 
• Investments in ELSS funds are eligible for tax deductions up to ₹1.5 lakh per financial year, making them a popular choice for individuals looking to reduce their tax liabilities.

For example, if your annual income is ₹10 lakh, and you invest ₹1.5 lakh in an ELSS fund, your taxable income will be reduced to ₹8.5 lakh, leading to a lower tax burden for that year. This tax-saving feature makes ELSS an attractive option for individuals looking to optimize their tax situation while simultaneously investing for long-term wealth creation. 

There are extra benefits to capital gain tax, but is not permanent there might be changes from year to year.

 Power of Compounding:

Compounding is the greatest power of mutual funds When your invested money gets returned, then money will be reinvested in the same mutual fund. This feature of Mutual Funds makes it great for wealth creation.

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Conclusion:

India's mutual fund industry growth rate is at its peak. Total asset value under management was increased by nearly 39 % from November 2023. For New people who don’t know details about the stock market. 2025 is best for starting a mutual fund investment.

FAQ:

1. Why do I invest in a Mutual Fund?

Ans: The Mutual Fund has various advantages to invest in, its affordability, tax benefits, and professional management attract investors to invest in Mutual Funds.

2. What is the main purpose of a Mutual Fund?

Ans: Mutual Funds the one of the effective investment instruments.it offers diversification in Mutual Funds, it reduces risk which leads to the best Wealth Management.

3. Who should invest in Mutual Funds?

Ans: A person who doesn’t have enough knowledge about the financial market and looking for a diversified portfolio is a less risky investment option. 

4. When to invest in Mutual Funds?

Ans: The best time to start investment in Mutual Funds is, when the market gives some correction, and financial data shows future growth.

5. Which type of Mutual Fund is best?

Ans: Every Mutual Fund has advantages and disadvantages concerning the rate of return. Equity Funds and Hybrid Funds are more Popular for investment.

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