A mutual fund is essentially a common pool of money in which different investors put in their contribution. This collective amount is then invested according to the investment objective of the fund. A fund manager, who is a finance professional, manages the pooled investment. The Fund Manager purchases stocks and bonds using that investment.

Mutual funds, unlike stocks, do not invest only in a particular share. Instead, a mutual fund plan would invest across several investment options to provide investors with the best possible returns. All these stocks are chosen by the fund manager, so the individual investor need not worry about doing individual research on any of the stocks

Why Should You Invest in Mutual Funds?

1) Investment Handled by Experts :

Fund Managers are highly skilled financial professionals who have been successful in managing investment portfolios. One only needs to invest and the rest is handled by the experts. The experts are further backed by analysts who do detailed analysis of the stocks and help the fund manager deliver good returns. This is one of the most important advantages of mutual funds.

2) Diversification :

A mutual fund invests in multiple securities, from 25 to around 200. This results in reduced risk. As your money is invested in multiple stocks, the fall of one stock is compensated by the rise of another one. This helps in absorbing volatility and reducing risk.

3) No Lock-In Period :

a. Wealth Creation Mutual Funds come with no lock-in period. Tax Saving Mutual Funds have a 3 year lock-in period. This gives the investor the freedom to withdraw the investment whenever needed. Also, one can book profits and switch to different types of mutual funds as per the economic scenarios.

4) Tax Saving

a. Compared to the other tax saving instruments, ELSS Funds (Tax Saving Mutual Funds) have consistently delivered higher returns. Also, Tax Saving Mutual Funds come with the lowest lock-in period, which is 3 years. This gives investors more freedom to access funds as compared to PPF, ULIPS and FD.