Mutual Funds are investment schemes professionally managed by financial experts. Many of us invest in Mutual funds to generate better returns and have greater liquidity. Historically, Mutual Funds have proven to be much better investment avenues than other products available to investors. Investments in MF have proven to be more effective because of the following reasons:
1. Managed by professionals: Financial experts invest in equity and fixed income products invest on your behalf. They are supported by large teams which assist them in analyzing data and dissecting nitty gritty of the markets (macro and micro economic environment, GDP rates, Interest rates and its future outlook, fundamental analysis into each company that they invest or not invest in) which clients as individuals might not be able to do themselves.
2. Better taxation structures: The government of India offers incentives to customers to invest in mutual funds by providing tax structures. So while your fixed deposit returns are completely taxable, Investment in debt mutual funds come with tax indexation benefits
3. Better Flexibility: Mutual funds are held in units. So you can always redeem your investment partially while keeping the other investment intact and untouched. This is unlike fixed deposits where you have to fully withdraw your investment and pay pre-mature withdrawal charges on the entire amount.
4. Better liquidity: Open ended mutual funds can be sold anytime. This is unlike investment like Insurance, PPF, NSC, etc. where you have long lock-in periods and large pre-mature withdrawal penalties.
5. Better Diversification: Mutual funds invest in multiple securities. This diversifies the risk for you much better than other investments.
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