Advantages of Mutual Funds

1. Better Market Rates and Lower Rates of Brokerage:

The pooling of funds from a large number of investors ensures that a total corpus of a Mutual Fund is very large. Due to the large funds, Mutual Funds are normally able to buy cheaper and sell dearer than individual investors. This is because of better market rates and lower rates of brokerage.

2. Optimum Diversification is Possible:

In Mutual Funds, optimum diversification is pos­sible because of large funds. Whereas an individual investor cannot hold more than a few companies shares because of limited funds, a Mutual Fund invests in a large number of shares to reduce risk. In simple terms a mutual fund follows the saying "don't put all your eggs in one basket." This reduces the risk for the investor.

3. Maintains a large Research Team:

Due to the large funds available, a Mutual Fund is able to maintain a large research team. The research team consists of experts who constantly analyze various economic and sector specific factors affecting various industries and com­panies and accordingly take informed decisions on subscriptions to new issues and pur­chases/sales on the stock exchanges.

4. Increase the Overall Return on Investment:

Mutual Funds help to increase the overall return on investment to the small investors. The returns are higher than bank deposits. The investment has the same benefits as investment in equity and debentures, i.e., capital appre­ciation and regular income.

5. Greater Accessibility:

The Mutual Funds have greater accessibility to investors through the branch network of banks. They have the financial muscle to move the stock market due to large funds at their disposal.

6. Direct Access:          

Mutual Funds have direct access to big investment opportunities through private placement and disinvestments methods.

7. Risk Diversification:

Mutual Funds have the capacity for risk diversification geo­graphically and industry group-wise.

8. Limited Expenses:

In Mutual Funds, only the expenses relating to the schemes as permitted by SEBI guidelines are charged to the respective schemes. Hence, unnecessary expenditure cannot be charged to Fund Account.

9. Small Investors can also participate:

A small Investment of as low as Rs. 1,000 in the mutual fund makes a person as an investor in a large company through Fund Investment.'

10. Tax Benefits:

Mutual Funds (Equity Investment related Schemes) are totally exempt from tax on its all income. Mutual Funds do not deduct tax at source on dividends payable to the Unit holders. Central Government, may, however, make changes in the regulations through the Union Budgets.

The investments made by a Mutual Fund are thus, based on thorough research and latest information. As this research requires a large number of analysts, a library, various databases and visit to companies, it involves a lot of effort, time and expenditure. It is not possible for individual investors to share this kind of time, effort or money. This is where a Mutual Fund becomes useful for investors.

11. Liquidity:

Mutual funds by its large Fund base provide liquidity to capital market - both for Equity segment and Debt segment. It thereby develops capital market and ulti­mately the economy of the country.

12. Mobilization of Savings:

It helps to mobilize savings of small investors scattered around the country and channelize the funds for the growth of industry and economy through their capital market activity.

13. Increase in Shareholder Value:

Mutual Funds mostly put their money in corporate financial instruments like shares, debentures etc., when they actively deal in these instru­ments, the liquidity of those scraps improve. Further, due to demand for those instruments, their market value picks up. This value addition to the shares ultimately increases share­holder value of the companies' investors.