Advantages of Investing in Mutual Funds

Advantages of Investing in Mutual Funds

There are many different investment avenues available to investors. Mutual funds are one of them that may offer good investment opportunities. These are a type of financial instrument made up of a pool of money collected from many investors. They then invest in securities such as shares, bonds, money market instruments and other assets. 

Advantages of Investing in Mutual Funds

A few advantages of investing in mutual funds are highlighted below:

  1. Professional Fund Management:
    Mutual Funds are well regulated and professionally managed. A fund manager continuously monitors and rebalances the portfolio accordingly to meet the scheme’s objectives. Portfolio management by professional fund managers is one of the most important advantages of investing in a mutual fund.
  2. Option to take exposure to a range of asset classes:
    Mutual Funds (MFs) offer various schemes like those investing only in equity, debt or gold etc to cater to the risk appetite of various investors. Even with very small amounts, investors can invest in MF schemes through monthly systematic investment plans (SIP).
  3. Well Regulated and Transparent:
    As far as mutual funds are concerned, The Securities and Exchange Board of India (SEBI) formulates policies, regulates and supervises mutual funds with an aim to protect the interest of the investors. It has laid down strict rules and regulations to ensure transparency, fairness, and investor protection in the mutual fund industry.
  4. Flexibility to transfer and options to invest and withdraw:
    There are various systematic options available for investors to transact in mutual funds. A few of these options are highlighted below:
    1. Systematic Transfer Plan (STP):

    Investors may opt for a Systematic Transfer Plan. It is a mechanism by which an investor is able to transfer a fixed or variable amount or only the gains made from one mutual fund scheme to another. An STP may actually be used as a hedge against market volatility. Money may be first invested completely in a debt-oriented fund and periodic transfers may be made into an equity-oriented fund as a protection against immediate market volatility. This may ensure a slow exposure to a slightly more risky asset class. Hence, there will be regular transfers to the equity fund while a certain amount of the corpus is invested in the debt-oriented fund and is preserved.
    2. Systematic Investment Plan (SIP):
    It is an investment option which provides a structured way to invest regularly in mutual funds by contributing a fixed amount monthly, quarterly, annually etc. Investors can learn more about SIPs here
    3. Lumpsum Investing: 
    Unlike SIPs, lumpsum investing involves investing a sum of money in one go into the mutual fund scheme. 
    4. Systematic Withdrawal Plan (SWP):
    A Systematic Withdrawal Plan (SWP) allows investors to withdraw a fixed amount from a mutual fund scheme regularly. Investors can choose the amount and frequency of withdrawal. They may also choose to just withdraw the gains on your investment keeping your invested capital intact. At the set date, units from your portfolio are sold and the funds are transferred to the investor’s account.
  5. May suit your Financial Goals:
    Mutual funds in India offer a diverse range of options across different risk profiles. Whether you are a beginner or a seasoned investor, you may be able to find a mutual fund that aligns with your income, investment goals, time horizon, and risk appetite. 


Mutual funds (MFs) may be considered an investment option for those looking to invest in the capital markets without taking direct exposure to the capital market securities. MFs may have the potential to offer wealth creation opportunities in the long term. However, like all investments, they also carry certain risks. Hence, investors should compare the risks and expected returns after adjustment of tax before making any investment decisions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully

Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.

Published on July 5 2024