For investors seeking to diversify their investment portfolio, mutual funds are a viable option. Let’s learn why?
The 10 Advantages Of Mutual Funds
1. Types Of Mutual Fund Investment Schemes
Overall there are three types of investment schemes, equity funds, debt funds, and hybrid funds.
Equity funds, also known as stock funds, invest principally in stocks. They can be managed actively, with fund managers assessing each and every stock to invest in.
They can also be managed passively through an index fund, which tracks market indexes, which is a section of the stock market with selected shares.
In contrast, debt funds invest solely in fixed-income instruments such as treasury bills, government bonds, commercial papers, etc.
Hybrid funds have investments that are similar to both equity funds and index funds.
There are other categories of mutual funds, but the above three are the most popular and easily trackable ones for the everyday passive investor.
2. Investment Diversification
Whatever investment scheme an investor selects, whether it be investing in shares or fixed-income instruments, funds will always be invested in multiple options.
As a result, investors are able to get the much sought-after diversification in their investment portfolio even if they were to invest in a single mutual fund scheme.
If investors were to individually invest in shares or fixed-income instruments, they would spend a great deal of time researching and tracking performance. With a mutual fund, investors only need to track the fund overall regardless of how many different instruments the fund has invested in.
3. Mutual Funds Are Managed By Professionals
Mutual funds are managed by a dedicated fund manager, who in turn has a team of professionals that have the technical training to responsibly invest and manage the fund.
Such individuals are certified to be in the jobs they are performing and it is the fund manager’s responsibility to ensure that investors receive the best return from their investments.
This involves constant assessment, timely management, review of investments, and, most importantly, research.
In fact, fund managers and their teams are constantly researching the instruments and analyzing their performance, in ways that an everyday investor may not be able to.
Having such professionals manage investments offers a great deal of relief, as investors can be assured their money is in trained and professional hands.
Investors enjoy a lot of convenience with mutual funds. The minimum investment thresholds, if any, tend to be quite affordable, making these investments more accessible to a wider demographic as well.
As such, if an investor wants to become part of a mutual fund, they can do so without having to incur a huge dent in their capital.
5. Liquidity When Needed
Despite the formal nature of mutual funds, with investors technically investing in shares or fixed-income instruments, mutual funds are quite liquid.
If an investor is running short on funds and needs to liquefy an asset, mutual fund units are a great option. Very rarely do investors find a mutual fund that doesn’t let them divest at choice.
Investors could easily sell their mutual fund units in the market and use the cash for whatever purpose they require. In the current digital age, such transactions can take as little as 15 minutes even.
6. Tax Benefits
A lot of mutual funds are also tax efficient. Index funds limit taxable capital gains and there is no tax on potential gains, dividends, or interest.
To know more about the tax impact of mutual funds, it would be prudent for potential investors to consult with a financial advisor, who has personnel who can go into depth on tax impacts and getting the most out of one’s investment.
7. Mutual Funds Efficiently Help Investors Achieve Goals
The reasons for investing are somewhat similar among all investors. One could be buying a house, or a new car, or saving up for their child’s college or retirement.
Mutual funds offer investors the ability to achieve these goals in a calculated manner. Mutual fund calculators help determine returns according to investments, letting investors build while being informed.
Investors not only know where their investments stand but how close they are to achieving their personal goals.
8. Lower Operating Costs
Due to the sheer number of units that are constantly being sold and purchased, mutual funds tend to achieve economies of scale quite easily resulting in lower operating costs.
As a consequence, this makes mutual fund units a bit more affordable for investors.
Due to the outreach of mutual funds and the accessibility the public have to them, mutual funds Are heavily regulated in almost every market they are present.
Mutual funds are also required to publish performance reports at regular intervals, meaning investors wanting to see how their money is managed are able to do so with ease.
Whether it’s online or offline, personally from the asset management company or through a broker, mutual funds are very easy to purchase.
With brokers, investors are able to find multiple mutual fund options from various asset management companies under one roof. Oftentimes the cost of such brokers is borne by the asset management companies rather than the investors.
If you take advantage of online portals, you have the added advantage of buying or selling at any time and from any place. Online tools will also let you track the performance of mutual funds.
There are very few investment schemes that would offer this level of accessibility, along with the added feature of reliability through regulatory oversight and professional management.
To get a better understanding of these advantages and the actual impact they can have on your finances and taxes, it would be best to speak to a financial advisor.
Reputed advisory firms such as Eastport Financial Group Inc, can help not just investors but all individuals and businesses that are seeking the right advice and strategy to secure their financial futures.