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features of mutual funds

10 Important Features of Mutual Funds (That You Should Know Of)

There are already ample investment opportunities for inventors that they can explore.

But of course, the transparency and security that mutual funds provide, it’s unlike every other investment.

India’s mutual fund assets collected a record-breaking $701.90 billion last May. It has taken the industry plenty of decades and fluctuations to reach this benchmark. And looks like, it has no signs of slowing down any time soon.

This type of investment is less risky. Mutual funds allow you to invest in various assets without buying every asset individually. It’s a flexible option for people unwilling to put all their eggs in one basket. 

And of course, mutual funds are a great investment tool, but how else can you also benefit from your mutual fund investments?

Let’s talk about it in detail.

How Do Mutual Funds Work?

A mutual fund is a pool of money collected from several investors. This money is invested into one common interest, like shares, debts, assets, bonds, and stocks. 

The capital gain that investors receive depends on the market condition. 

Whether it is capital gain or loss, the returns are equally distributed amongst the investors, and after subtracting certain expenses. You calculate the Net Asset Value to estimate the amount. 

The returns are generally greater than other investments. 

10 Practical Features That You Get from Mutual Funds

The mutual fund investments have increased by 35% in 2024. This is the highest gain since 2021 when the industry made a massive 41% jump. 

Investing in mutual funds is advantageous. But, one should also identify personal financial goals and evaluate their monetary streams to arrive at a decision. 

Let’s consider the practical benefits of mutual fund investments if you want to leverage these returns.

1. You Can Borrow Loans Against Mutual Funds

Believe it or not, mutual fund loans are a thing.

A popular one too.

Out of all digital lending trends, mutual fund loans have been able to garner the most attention.

This is because these types of loans allow you to borrow money against your mutual fund portfolio. 

Most importantly, you pledge your mutual fund units as collateral, which means that your borrowing capacity is directly linked to the value of your portfolio.

If you’re facing a cash-strapped situation, you can easily explore such an option. In fact, you can even use mutual funds for home loans

At 50Fin, we offer loans against mutual funds at an interest rate of just 10.5% p.a. Plus, the approval time is just 7 minutes and the loan disbursal time is just 4 hours.

Recommended: Loan Against Mutual Fund Units

2. Your Portfolio Is Also Your Instant Piggy Bank

Unlike other investments, mutual funds offer the greatest advantage. They allow you to withdraw your money at any time you want. 

Simply put: they are easy to buy and easy to sell. 

This flexibility gives it an edge over other investment modules. 

With mutual funds, you can access your money whenever you want, while also taking advantage of the market trends. 

3. Your Portfolio is Automatically Diversified

Mutual funds offer you the option to invest in different security deposits. This way, you don’t put all your money into one stock or equity. 

Instead, you have a versatile portfolio that helps you withstand volatile market conditions. 

Should the value of one stock drop, the succession of the other should safeguard your interest. 

By investing in a mutual fund, you extremely diversify your options. 

It makes the investment less risky. 

4. Your Investments Could Also Be Managed By Experts

A neophyte may not be aware of all the investment options available to them. Due to the flux of information, they might get confused – or worse, intimidated. 

But with mutual funds, you can employ someone to manage your investment. 

AMCs collect money from investors and guide you to invest in profitable securities. No one can truly guarantee the outcome of any investment, but by having an expert analyst by your side, you can make your best investment. 

And their job isn’t done once the investment is made. They keep an eye on the market value. 

They also keep tabs on other investors who’ve invested in the same securities. Your job is to invest the money, and the rest is taken care of. 

These people excel in their field, so you don’t need to worry about anything else. 

5. Flexible and Low Upfront Investment

When we speak of mutual funds, we speak of flexibility. 

The best aspect of investing in a mutual fund is that you don’t need to put in excessive amounts of money. You can keep in mind your cash flow rate to invest. 

For example, if you have a salary-based income, you can choose a Systematic Investment Plan (SIP). 

The small upfront investment makes this option convenient and affordable for everyone. A fixed amount of money is invested monthly or quarterly. Mutual funds are great for beginners looking for small investments.

6. You Can Easily Buy, Track, and Manage Mutual Funds

What gives mutual funds an edge is their accessibility. 

You can buy and invest in mutual funds from anywhere. And most importantly, you don’t need to open a Demat Account for investing in mutual funds. 

There are several online platforms and smartphone applications that offer mutual investment opportunities. 

These platforms allow you to track and manage your portfolio. 

You can receive regular updates on your mutual fund by subscribing to its email and SMS. Or you can simply turn on the notification for monthly online statements. 

Usually, an AMC provides funds and allocates funds to different avenues. Some of these avenues are:

  • Banks
  • Asset Management Companies (AMCs)
  • Brokerage firms
  • CAMS and Karvy registrars
  • Online platforms 

7. The Minimum SIPs in India could even start from Rs. 500

The minimum amount that you can invest as an SIP to open a mutual fund is Rs. 500. There is no cap on the maximum amount, so you can invest according to your suitability. 

Mutual funds are for investors of every appetite and for everyone – whether you believe in moderate investments or you’re a risk-taker. 

Always ensure that your investments are aligned with your financial goals, risk tolerance, and the scope of the investment. 

This makes mutual funds an acceptable investment for people in every walk of life. 

8. Color-Coding for Transparency

All mutual fund securities are color-coded to help you assess their level of risk.

Recently the SEBI guidelines were introduced. They have implemented the process by labeling every mutual fund scheme with colors. 

Every color indicates how risky it is as an investment. The step may seem small and unimportant. 

And what it did is that it increased transparency and made mutual fund investments more secure. Three colors assert a different level of risk. 

  • Blue is a low-risk investment for conservatives
  • Yellow is considered a moderately risky investment
  • Brown is a high-risk investment

And to top it all, you can always question the credibility of fund managers and verify their qualification certifications. 

You can also seek details of their professional experience. These queries may help you solidify your decision to trust and invest. 

9. There Are No Hidden Charges

The steps to make a mutual fund investment are simple. 

First, the AMCs collect funds from investors. This money is used to buy a security, like a stock or company share. These funds are then used to buy assets.

This cost-effective solution helps you dodge brokerage and commission costs. If you had directly invested in the stock market, you’d have to pay transaction fees as well. 

The expense ratio is the only minor transaction fee that will be incurred when you invest in mutual funds. It is a small percentage of the assets required to manage the funds.

10. Mutual Funds Are Tax Efficient

Mutual funds are tax-efficient. It means that you get to benefit from several tax-saving benefits, like an equity-linked savings scheme (ELSS). 

To give you an example, with a mutual fund investment, you become eligible for the Income Tax Act. Through this, you can deduct tax under section 80C. The tax exemption can go up to Rs. 1.5 lakh per year.

If you opt for other mutual funds, you may get taxed. The amount of tax applied depends on the tenure and the type of fund you choose. 

Make sure you use an income tax calculator to plan your taxes. This will help you stay compliant with the law and save your hard-earned money. 

The ELLS Tax Saving Mutual Funds can give greater capital returns than other tax-saving schemes like PPF and other FDs. 

The Bottom Line

The decision to invest is your own.

By planning your finances today, you can create a safety net for tomorrow. And mutual funds are one of the best ways to do so.

But what’s even better is that you can put your mutual fund portfolio to use and even borrow loans against them.

Start by signing up at 50Fin and get a mutual fund loan against your mutual fund portfolio right away.

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