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What is a Mutual Fund?
A mutual fund company is engaged in pooling the money from various investors to invest their money in securities such as stocks, bonds, short term debt, etc. Moreover, the combined holding of mutual funds has been termed as a portfolio.
Can a Non-Resident of India (NRI) invest in mutual funds?
Indeed, a non-resident of India can invest in mutual funds.
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Benefits of Mutual Funds
Provide Means to Earn Money
Below-mentioned are the ways through which Mutuals funds helps in earning money,
Capital Gain Distributions
When an individual sells the high-priced securities, that person can avail of the high capital gains. Moreover, at the end of the year, the investors will receive the fund distributions excluding capital losses.
Dividend Payments
The fund probably earns the income from the dividend on stocks or interest on bonds. Consequently, these funds pay nearly the total income of shareholders.
High Net Asset Value
After excluding the expenses, if the value of the fund’s portfolio exceeds, it will increase the value of funds and its shares.
Flexibility in Liquidity
Mutual funds allow investors to redeem their money anytime. Therefore, unlike Fixed Deposit, mutual funds provide pliable withdrawals. However, before that, you have to consider factors such as pre-exit penalty and exit load.
Expert Management
In mutual funds, the experts combine their money and allocate it in various securities. Thus, assist the investors in incurring profit. Moreover, experts also keep a check on challenges and provide the most appropriate solution for the same.
Therefore, it allows the experts to use their expertise and knowledge to manage and operate the mutual fund.
Ensures Diversification
The value of investment won’t increase or decrease in tandem. So, if the value of an investment has increased, the value of others probably will decrease. Hence, the overall performance value of a portfolio has minimum potential to be volatile.
In simpler words, diversification minimizes the risk involved in creating the portfolio, consequently minimizing the investor’s risk.
Pliability to Invest in Small Quantity
Mutual funds allow you to invest according to the cash flow position. This eliminates the need to invest a considerable amount of capital at once.
Ensures Safety and Transparency
With the introduction of SEBI guidelines, each mutual fund is labeled, which provides color-coding to all the Mutual Fund Schemes. Thus, an investor can ascertain the level of risk in the investment. Hence, it makes the investment process crystalline.
Low Tax Gains
Under Section 80C of the Income Tax (IT) Act, with the help of an equity-linked saving scheme, an individual can save up to Rs 1.5 lakh per year.