Diversification

Diversification involves holding a wide variety of investments in a portfolio so as to mitigate risks. Mutual funds usually spread investments across various industries and asset classes, constrained only by the stated investment objective. Thus, by investing in mutual fund, you can avail of the benefits of diversification and asset allocation, without investing the large amount of money that would be required to create an individual portfolio.

Professional Management

Mutual funds employ experienced and skilled professionals, who conduct investment research, and analyse the performance and prospects of various instruments before selecting a particular investment. Thus, by investing in mutual funds, you can avail of the services of professional fund managers, which would otherwise be costly for an individual investor.

Liquidity

In an open-ended scheme, unit holders can redeem their units from the fund house anytime, by paying a small fee called an exit load, in some cases. Even with close-ended schemes, one can sell the units on a stock exchange at the prevailing market price. Besides, some close-ended and interval schemes allow direct repurchase of units at NAV related prices from time to time.

Flexibility

Mutual funds offer a variety of plans, such as regular investment, regular withdrawal and dividend reinvestment plans. Depending upon one’s preferences and convenience, one can invest or withdraw funds, accordingly.

Cost Effective

Since mutual funds have a number of investors, the fund’s transaction costs, commissions and other fees get reduced to a considerable extent. Thus, owing to the benefits of larger scale, mutual funds are comparatively less expensive than direct investment in the capital markets.

Well Regulated

Mutual funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI), which strives to protect the interests of investors. Mutual funds are required to provide investors with regular information about their investments, in addition to other disclosures like specific investments made by the scheme and the proportion of investment in each asset class.