Why are mutual funds are considered investor-friendly?— Mihir Shah
Mutual fund investments are considered investor-friendly for a variety of reasons.
For one, they offer investors easy access to the stock market. Investing in equity is not easy. One has to understand market cycles, financial ratios, study balance sheets and annual reports of companies, understand sector dynamics and industry specifications too. A mutual fund has a team of specialists who specialise in sectors, study companies, analyse them and invest in them. So by investing in a mutual fund, an investor can get exposure to a portfolio of stocks. This is diversification in an instant.
Mutual funds are also fairly liquid investments. They are not illiquid investments like real estate. One can buy and sell the units anytime and the money will be credited to the sellers bank account within two days. They do not have any lock-in periods like other instruments. In certain cases, funds even offer tax benefits. These funds are called equity linked savings schemes (ELSS). However, their holding period is for three years.
In the case of debt funds, retail investors who normally cannot participate in the debt market, will be able to do so via a debt fund.
Basically, mutual funds offer a hassle-free way to invest in equity and debt. Investors can do so with sometimes as little as Rs 100. They also give the investor the opportunity to invest small amounts at periodic intervals, so affordability at one go is not an issue. Convenience and diversification are its scoring points.