Mutual funds Pros and Cons: Pros and Cons of Investing in Mutual Funds, After providing Details for “Retail Investors and Mutual Funds in India“, Now here we are providing complete details for Pros and Cons of Mutual Funds. Check Advantages and Disadvantages of Mutual funds. Recently we also provide complete details for What is Mutual Fund – A Beginner’s Guide – Full Introduction?. Now you can scroll down below and check more details for Mutual funds Pros and Cons.
Mutual funds Pros and Cons
Mutual funds offer certain additional advantages to investors over and above the traditional investments. These are:
- Portfolio diversification, irrespective of the money invested, which is not available in other market related investments.
- Small investments in equity or bond market on monthly basis, which is only available in bank recurring deposits or post office monthly income schemes (MISs).
- Hassle free entry and redemption.
- Wide choice of available schemes for investors to tune their portfolio according to risk apetite, return, liquidity, and affordability
- Minimal transaction cost for investments
- Professional fund management under the surveillance of market regulator SEBI to make investments more transparent.
- Instrument to beat inflation in the long-run. This is especially true if the investor adopts a systematic investment plan to average the rupee-cost equation for the whole investment in the long term. The investor gets a much better return.
Mutual funds, nevertheless, are not beyond criticisms. Agents and distribution houses play a pivotal role to build fund corpus because mutual funds are a collective investment vehicle. Active interaction by the agents lead to larger retail participation and an immature advice by the distribution house could cause loss to the investor. Indian AMCs often face such operational difficulties in fund mobilisation.
Practical problems that are real, can be accepted, but not the misconceptions. Some common misconceptions regarding mutual funds are as follows:
- Mutual Funds need heavy investments. This is entirely wrong because a mere ₹500 is enough to begin a mutual fund investment
- Mutual Funds are for long-term investments. This is also not correct. Both short-term and long-term options are available in mutual funds. Investments can be redeemed even after a day, in liquid schemes.
- Mutual funds give tax benefits. This is partly true because only the equity linked savings schemes (ELSS) are eligible for tax benefits under section 80CC of the Income Tax Act. For non-ELSS schemes, the usual short-term or long-term capital gains are applicable.
- Mutual funds are linked only to the share market. This is a gross misconception. Mutual funds invest money in equity, debt market, commodity, and other sectors as defined in the objectives.
- Lesser net annual value (NAV) is more attractive. This is in acceptable because NAV only reflects a fund’s per unit valuation and not the real price.