A mutual fund is a professionally-managed form of collective investment that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
Some of the advantages of investing in Mutual Fund are :
- Professional Management
- Diversification of Risks (by holding a number of stocks)
- Low costs on account of economies of scale
- Liquidity
- Flexibility regarding tenor
- Choice of schemes depending on risk appetite
- Tax benefits
- Transparency
- Well Regulated
Systematic Investment Plan (SIP):
This is now a popular method of investment in India where investor contributes a fixed amount every month regularly.
- Investment can be as low as Rs. 500 per month for some funds.
- You buy more when the price is down and less when the prices are high-this method reduces the average unit cost compared to buying in lump sum as SIP ensures averaging of rupee cost in the lower range of average market price.
- Since you are investing a fixed amount regularly for longer term you can enjoy the benefit of tax (capital gains) and reinvestment.
Tax Benefit:
Tax Saving Schemes of mutual fund offer Tax Rebates to investors under Section 80C of Income Tax Act, 1961 as government offers incentives for investment in special avenues. e.g., in Equity Linked Saving Scheme (ELSS). Tax saving is currently available up to an amount of Rs. 1.5 lakhs.