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Six Factors Which Make Mutual Funds Attractive For Retail Investors

Jan-30-2019Blog by – Mr. Ashish AjmeraRead Time: 4 Min.Word Count: 881210Six Factors Which Make Mutual Funds Attractive For Retail Investors
The domestic stock markets have witnessed a fascinating joyride over the last few years. The benchmark NIFTY 50 hit an all time high near 11700 in August 2018. The index lingered around 6000 mark at the start of 2014. Such a massive jump in stock prices has also led to a staggering increase in retail investor participation though the mutual funds. Assets managed by the Indian mutual fund industry have grown from Rs. 22.60 lakh crore in December 2017 to Rs. 24.09 lakh crore in December 2018. This accounts for a 6.55% growth in assets over December 2017. Individual investors held Rs.12.91 lakh crore in mutual funds as of December 2018, marking an increase of 12.86% over December 2017. What is driving the retail investors to investing in mutual funds? Here are the six factors which turn mutual funds an attractive investment option for the retail investors:

Range of options: There are a variety of mutual funds schemes available to choose from. This allows investors to use mutual funds to meet a variety of financial goals. If your risk appetite is strong, you can go for equity funds with a focus on mid and small caps. If your risk appetite is moderate, you can choose to invest in large cap funds and if your risk appetite is very low and safety is of paramount interest, then it is advisable to invest in debt funds. In fact, given the range of various funds across these segments, you can build a steady corpus over the period of time by investing in a number of funds matching your risk profile. In fact, Systematic Investment Plan (SIP) come in very handy for retail investors as it allows investors to make regular, equal payments into a mutual fund for a period of time instead of one-time payment.

Diversification and consistency: A diversified portfolio of stocks and consistent check on the investments are two of the biggest hallmarks when it comes to equity mutual funds. A mutual fund is a fund of funds i.e. your money is combined with the money from other investors, and allows you to buy part of a pool of investments. A mutual fund holds a variety of investments which can make it easier for investors to diversify than through ownership of individual stocks or bonds.

Safety and Quality: Unlike other quick-money schemes and chit funds, mutual funds are regulated and supervised by agencies like the Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI). Such statutory overseeing ensures that while investors are dealing with market risks in terms of volatility in share/bond prices, the risk of losing capital due to a fraud are minimal.

Professional management: It is understandable that an individual investor may not have the skills and knowledge to pick up well performing stocks in a successful manner over the years. Mutual funds allow you to pool your money with other investors and leave the specific investment decisions to a portfolio manager. These managers are highly qualified and credible when it comes to professional investing and decide where to invest the money and when to buy and sell the holdings. Track record and credentials of such managers are available to scrutiny and investors can make up their decisions about investing in a fund based upon such information.

Ease of operations: It is very easy to invest in mutual funds. You can sell your fund units or shares at almost any time if you need to get access to your money given the online operations. However, there is a lock in for some equity linked savings schemes. You can invest using a demat account to simplify the process of transmission of units to nominee in case of account holder’s demise and also avail a single statement to view all holdings.

Tax Benefits: Investments in Equity Linked Saving Schemes or ELSSs qualify for tax deduction under Section 80C of the Income Tax Act. The maximum tax deduction allowed under Section 80C is Rs 1.5 lakh under Section 80C. However, the last Union Budget introduced a tax on dividend income by equity-oriented mutual funds at the rate of 10%. Also, Long Term Capital Gains (LTCG) over Rs 100,000 per year on Equity Mutual funds will now be taxed at 10%. This is pushing investors to opt for the Growth option as compounding effect of having dividends reinvested would allow for a sizable increase in your invested funds over the long term.

Conclusion:

Given the plethora of mutual funds available in the market, it is advisable to connect with a good mutual fund advisor when it comes to selecting funds to ensure long term wealth creation. For retail investors, investing in stock markets through mutual funds is a very useful and easy option. Mutual funds have emerged as an attractive investment option for all types of investors in recent years. The outlook is supportive for domestic economy.  India`s GDP is forecast to expand 7.5% in FY20 and 7.7% in FY21, as per the International Monetary Fund`s (IMF). India will continue to be the world`s fastest growing major economy, benefitting from overseas investment flows and would see a steady uptick in financial markets.

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