Investing in mutual funds – the benefits

With a modest investment amount, you can have a well-diversified investment portfolio. Let’s say you invest Rs 1,000 in an equity fund. Your investment will be spread across a number of companies, which will help reduce your investment risk. If you invest in a debt fund, your investment will be spread across a number of debt investments, again reducing your investment risk. Had you invested this Rs 1,000 in equity on your own, you would have been able to invest in shares of only 2 or 3 companies. Similarly, in case of debt, you would have been able to invest in only limited debt resources.

Mutual funds appoint investment experts (called fund managers) who are supported by a team of research analysts with a number of years of experience. You can avail of their expertise to manage your investments at reasonable charges.

Open ended Mutual funds make it very easy for you to sell your investments and get your money back. You don’t need to look for a buyer. Simply fill in a redemption request form and submit it to the mutual fund. You will get your money back normally within 1-3 working days.

Investing in mutual funds is very easy. All you need to do is fill in the application form and submit this along with relevant documents to the mutual fund or your investment advisor. You receive an account statement showing your investment in the fund. Mutual funds also permit you to invest online which is even more convenient. From the comfort of your sofa, log on to the mutual fund’s website or the website of your investment advisor and make your investment.

Dividends received from your mutual fund investments are tax-free in your hands i.e. you don’t pay tax on this income*. In addition, if you hold an equity mutual fund for more than a year, the profit you earn when you redeem is tax-free too. In case of debt funds, if you hold for over a year, you pay tax at a discounted rate of 10%^.
*Dividend distribution tax (DDT) will be as applicable.