Benefits of mutual fund Investments

The most important benefit of investing in a Mutual Fund is that the investor can redeem the units at any point in time. Unlike Fixed Deposits, Mutual Funds have flexible withdrawal but factors like the pre-exit penalty and exit load should be taken into consideration.

The value of an investment may not rise or fall in tandem. When the value of one investment is on the rise, the value of another may be in decline. As a result, the portfolio’s overall performance has a lesser chance of being volatile. Diversification reduces the risk involved in building a portfolio thereby further reducing the risk for an investor. As Mutual Funds consist of many securities, investor’s interests are safeguarded if there is a downfall in other securities so purchased.

Expert Management
A novice investor may not have much knowledge or information on how and where to invest. The experts manage and operate mutual funds. The experts pool in money from investors and allocate this money in different securities thereby helping the investors incur a profit. The expert keeps a watch on timely exit and entry and takes care of all the challenges. One only needs to invest and be least assured that the rest will be taken care of by the experts who excel in this field. This is one of the most important advantages of mutual funds.

Flexibility to invest in Smaller Amounts
Among other benefits of Mutual Funds, the most important benefit is its flexible nature. Investors need not put in a huge amount of money to invest in a Mutual Fund. Investment can be as per the cash flow position. If you draw a monthly salary then you can go for a Systematic Investment Plan (SIP). Through SIP a fixed amount is invested either monthly or quarterly as per your budget and convenience.

Accessibility – Mutual Funds are Easy to Buy
Mutual Funds are easily accessible and you can start investing and buy mutual funds from anywhere in the world. An asset management companies (AMC) offers the funds and distributes them through channels like :

Brokerage Firms
Registrars like Karvy and CAMS
AMC’S Themselves
Online Mutual Fund Investment Platforms
Agents and Banks

This factor makes mutual funds universally available and easily accessible. More so, you do not require a Demat Account to invest in Mutual Funds. Mutual funds are easy to buy, track performance and one-click investment with Scripbox

Schemes for Every Financial Goal
The best part of the Mutual Fund is the minimum amount of investment can be Rs. 500. And the maximum can go up to whatever an investor wishes to invest. The only point one should consider before investing in the Mutual Funds is their income, expenses, risk-taking ability, and investment goals. Therefore, every individual from all walks of life is free to invest in a Mutual Fund irrespective of their income.

Safety and Transparency
With the introduction of SEBI guidelines, all products of a Mutual Fund have been labeled. This means that all Mutual Fund schemes will have a color-coding. This helps an investor to ascertain the risk level of his investment, thus making the entire process of investment transparent and safe.

This color-coding uses 3 colors indicating different levels of risk-
Blue indicates low risk
Yellow indicates medium risk, and
Brown indicates a high risk.

Investors are also free to verify the credentials of the fund manager, his qualifications, years of experience, and AUM, solvency details of the fund house.

Lower cost
In a Mutual Fund, funds are collected from many investors, and then the same is used to purchase securities. These funds are however invested in assets which therefore helps one save on transaction and other costs as compared to a single transaction. The savings are passed on to the investors as lower costs of investing in Mutual Funds.
Besides, the Asset Management Services fee cost is lowered and the same is divided between all the investors of the fund.

Best Tax Saving Option
Mutual Funds provide the best tax-saving options. ELSS Mutual Funds have a tax exemption of Rs. 1.5 lakh a year under section 80C of the Income Tax Act. You can use Scripbox’s income tax calculator to ensure tax plan requirement All other Mutual Funds in India are taxed based on the type of investment and the tenure of investment. ELSS Tax Saving Mutual Funds has the potential to deliver higher returns than other tax-saving instruments like PPF, NPS, and Tax Saving FDs.

Lowest Lock-in Period
Tax Saving Mutual Funds have the lowest lock-in periods of only 3 years. This is lower as compared to a maximum of 5 years for other tax-saving options like FD, ULIPs, and PPF. On top of that one has the option to stay invested even after the completion of the lock-in period.

Lower Tax on the Gains
With an Equity-linked saving scheme, you can save tax up to Rs. 1.5 Lakh a year under section 80C of Income Tax (IT) Act. All other types of Mutual Funds are taxable depending on the type of fund and tenure.

Benefits of Equity share Investments

Profit Potential
Equities have the potential to fetch good returns. These returns can potentially be a tad bit better than most other investment options. Equities are known to give returns when you stay invested for the long run. For example, a small-cap stock worth Rs. 20 today can grow to be worth thousands if the company does well in the long run.

Potential returns that tackle inflation
Equity shares have the potential to give returns that are higher than inflation. This matters because any returns lower than inflation can mean you lose your purchasing power. Here's an example: Let's say you bought a product worth Rs 100. A year later, it costs Rs 150. This means the power of Rs 100 to purchase something has reduced. If you were to invest the same Rs 100 and it did not rise to Rs 150, you won't be able to buy that product worth Rs 150.

Dividend Income
The dividend is the income of the company that it distributes to its shareholders out of the profits. The dividend income act as a source of income for the shareholders of the company. It would not be wrong to say that dividend is one of the ways through which an investor earns a return on his investment. The rate of dividend varies from company to company according to their profits. Most long-term inventors prefer investing in those companies which have a good and consistent record of distributing dividend to the shareholders.

Exercise Control
When you invest in the stock of a company, you get the voting rights in it. Therefore, with the purchase of shares of a company you can exercise control and get ownership in the company. You can even participate in the shareholders or any other important meeting of the company.

Right Over Assets and Income
When you purchase the shares of a company, you get a part of the ownership in the company. This makes you the owner of the assets that the company owns. Also, investors can receive a share of the profits through dividends. They also stand to indirectly benefit when the company makes profits over time by way of an increase in the share's value.

Diversification of Portfolio
Equity markets provide investors an opportunity to diversify their portfolios. Diversification of a portfolio h elps in risk management and protects you from volatile fluctuations in the stock price. What makes diversification beneficial to the investor is the fact that underperformance of one sector can be compensated with the outperformance of another sector. Like for example, you invest in multiples stocks of different sectors and due to some reason, a particular sector is not able to perform well, then the losses in such investment can be compensated with sectors that have performed well in your portfolio.

Bonus Shares
Many times the companies decide to issue bonus shares to their shareholders. Bonus shares can be said as a type of dividend where the companies give the shareholders free shares. On numerous occasions, the bonus shares are given in place of dividends. For example, say you have 100 shares of a company trading at Rs. 1500. Now, if the company allocates bonus shares in the ratio of 10:1 then, you will get additional 10 shares. This means that the value of your investment has gone up from its initial Rs. 150,000 to Rs, 165,000, and added profit of Rs. 15,000. Now, if in a couple of months the share price increases to Rs. 1600, your investment could stand at Rs. 176,000.

Right Shares
Whenever a company requires further capital for expansion or any other business use, it issues the right shares. Right shares are those shares that are first offered to the existing shareholders of the company. The current investors have priority over other general investors during the right issue of shares. Right shares are generally (not always) issued at a price that is lower than the current market price of the stock. Therefore, the existing shareholder can take the benefit of purchasing the shares at a lower price or they can pronounce their right in someone's favour to get a value of right.

Stock Split
A stock split is another advantage of equity shares. Stock split means splitting the shares into parts and reducing the price of shares, leading to a higher interest of investors. The reduction of share price makes the stocks even more liquid and higher volumes lead to a spike in the price if the company is performing well. Thus, the stock split proves to be very beneficial for investors in the long run.

Liquidity is one of the main advantages of investing in equity shares. Liquidity means the volume of shares that are traded on the stock exchange. When you purchase the shares of a company, you have the option to easily sell them on the exchange. The availability of buyers to purchase your stocks during the market session make the equity market appealing. Therefore, whenever you are in urgent need of cash you can easily sell your stocks on the exchange and get money credited into your bank account.

Share in Growth
When you invest in the equity market you become the owner of the company. So being a shareholder of the company you get the opportunity to witness the growth and rise of the company. As an investor, it is a wonderful experience to be a part of a company that rises from the bottom and reaches glory. Furthermore, you also get the reward of the growth of the company in the form of appreciation of the share price.

Tax Advantages
Investment in equities has several tax benefits. The capital gains on returns on equity shares are taxed at a much lower rate in comparison to other countries. There is no lock-in period associated with equity shares from the viewpoint of taxation. However, there are two types of taxes levied based on the time you stay invested: Long-term capital gains (LTCG) and Short-term capital gains (STCG) tax. According to the last changes that took place in 2018, the LTCG above Rs.1 lakh is taxed at 10% without indexation. The STCG is taxed at 15% with the benefit of indexation.

Residual Claim
The equity shareholder has the right to make a residual claim on the assets and income of the company. This claim can be made on those assets or income that are left after paying all the stakeholders like debenture holders, lenders, etc. This advantage can become a major aspect if a company goes down. This is because, you can still lay claim to something from the company and get some of your investment back, instead of suffering a complete loss.

Mutual funds vs Equity shares
If you are investing directly in shares, there are a lot of complexities that you need to take care of. To start with, you have to examine a particular stock and assess if valuations are attractive. Investing in stocks tends to be a dynamic process because the business prospects change every day due to immense competition. On top of this, one should also understand how does the stock exchanges like Sensex and Nifty function. Moreover, you would require relatively higher initial capital to build a well-diversified portfolio.

If you take the case of Mutual funds, it is a more convenient way to enter stock markets. There’s an experienced fund manager who would take care of your portfolio. You need not worry about the market movements and other decisions related to portfolio management. More importantly, you can start a systematic investment plan (SIP) in mutual funds as low as Rs 500 every month. In short, you can achieve a similar level of diversification at a smaller amount.