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Why invest in Mutual Funds

Updated on March 7, 2023

Mutual Funds have become an investment of choice for a large number of investors and rightly so. With a variety of other options and new age tools and techniques available for investors, the question ‘why choose mutual funds’ assumes greater significance.

What are the benefits of investing in mutual funds?

Here are some advantages of mutual funds, which will help answer this question:
1.Portfolio Diversification
Mutual funds broadly invest in debt and equity (other types are extensions/variety of these two categories) and thus provide exposure to a variety of shares and/or fixed income securities to investors. Thus, mutual funds provide diversification to new as well as seasoned investors.
2. Multiple choices
It is one of the significant benefits of mutual funds. Investors can choose funds which align with their risk appetite, investment timeframe and personal financial goals.
3. Liquidity
Most of the mutual funds provide ample liquidity and the investor can buy and sell units at Net Asset Value (NAV) any time.
4. Lumpsum and SIP investments
Mutual funds are one of the most flexible investment options available. They allow lump sum investments as well as SIP (Systematic Investment Plan) through which relatively small amounts can be invested regularly. This reduces risk as well as the cost of acquisition.
5. Start small
Mutual funds allow very small investments and thus investors don’t have to wait for accumulating funds to invest.
6. Cost-Efficient
Mutual funds benefit from economies of scale through bulk transactions on exchanges and they have a relatively low expense ratio, thus making them quite cost efficient for investors.