Advantages of Mutual Funds – What Are Mutual Funds?

Reasons why mutual funds could be the perfect investment option for you

What are Mutual Funds? 

Mutual funds are professionally-managed investment schemes or funds and are run by an asset management company. These funds enable investors to invest in a diversified assortment of securities that are managed by proficient and experienced fund managers.

Mutual funds involve pooling money from investors to purchase shares, bonds and other financial securities. Based on their principal investments, mutual funds can be classified as money market funds, stock or equity funds, fixed income funds, index funds, hybrid funds or other funds.

These funds further provide an array of products such as fund of funds, fixed maturity plans, exchange-traded funds, sectoral funds and much more. Whether the aim of investors is financial rewards or convenience, mutual funds provide a variety of benefits to investors. Below are five such benefits of investing in mutual funds.

Advantages of Mutual Funds

1. Comparatively higher Return on Investment (ROI)  

One of the foremost aims of many investors is to achieve a higher rate of return on their investments to beat inflation and save for future needs. Depending on whether it is a long or medium-term investment, mutual funds have more prospects of providing higher returns, as you can invest in a diverse range of industries and sectors. Mutual Funds assist investors in generating higher inflation-adjusted returns, without them having to put in a lot of effort and time.

2. Managed by experts 

Mutual funds are managed by qualified and experienced fund managers who are skilled when it comes to making investment decisions based on robust research and expertise. Managing risks is another crucial consideration while making investment decisions. Most people don’t have the knowledge and time required for carrying out proper research and is unable to dedicate all their effort in monitoring markets or economies. Conversely, the job of a fund manager is to track all such variables and alter their portfolio to maximize the returns for investors.

3. Built-in Diversification 

One significant benefit of mutual funds is that unlike other investment vehicles, mutual funds assist you in creating a balanced and diversified portfolio. Some portion of the investment could have equity exposure, which offers long-term growth. Simultaneously, it could also include fixed income products to manage the risks better. When you’re investing in equity mutual funds, the same gets spread across various sectors, reducing the overall risk. Hence, if some stocks do not perform as expected, the outperforming stocks make up for such losses.