Advantage of mutual funds
Mutual Funds are advantageous to individual investors in relation to their direct involvement in investment portfolio activity covering the following aspects:
Mutual fund provides small investors access to reduced investment risk resulting from diversification, economies of scale in transaction cost and professional finance management.
Small investors participate in larger basket of securities and share the benefits of efficiently managed portfolio by experts, and are freed of keeping any records of share certificates, etc., of various companies, tax rules, etc.
Investors get freedom from emotional stress involved in buying or selling securities. Mutual Funds relieve them from such stress as it is managed by experts who act scientifically while buying and selling for their clients.
Revolving Type of Investment
Automatic reinvestment of dividends and capital gains provide relief to the members of Mutual Funds.
Selection and Timings of Investment
Expertize in stock selection and timing is made available to investors, so that invested funds generate higher returns.
Wide Investment Opportunities
Wide investment opportunities that create an increased level of liquidity for the funds holders become possible because of a package of liquid securities. These securities could be converted into cash without any loss of time.
Care for securities is available through mutual fund to the investors relieving them of various rules and regulations.
Income tax exemption has been ensured for Mutual Funds. While originally, only such Mutual Funds as are set-up by public sector banks or a public financial institution were exempt from tax, now the benefit of tax exemption has been extended to all Mutual Funds. Investors are eligible for deduction under section 80L of the Income Tax Act in respect of the dividends from units or shares of Mutual Funds and under section 88CC in respect of contributions made by investors to unit-linked insurance plan of UTI and LIC Mutual Fund.
The above advantages are only illustrative and not exhaustive as there is a scope of more to be added to the list in the light of individuals own experience(s).