Some investors are of the view that since mutual funds invests in stocks, it would be better to seek the services of a broker to invest in stocks. This is undertaken rather than not investing in mutual funds directly. People feel expense rations and lack of control in terms of mutual funds is the reason why people end up choosing stocks. Let us explore the main reasons why investing in tax saver mutual funds calls for a right approach. Before we precede ahead let us understand the various benefits of mutual funds for an investor.
The major benefit of investing in mutual funds over stocks is risk aversion. Each and every stock has varied levels of risk be it market risk, sector risk or even company risk. This can be further classified into systematic and unsystematic risk. For example the price of a stock could fall in the performance of a company is not as per desired standards, and this is even if the performance of a market is great. With mutual funds you are in a position to diversify your risks by investing in a wide pool of funds spread across various sectors.
For this reason the risk of mutual funds is lower than individual stocks.
Less capital outlay
As an investor you might require a large outlay of capital to work upon a portfolio of stocks. Because mutual funds work on the concept of pooling money, there is a benefit of diversified portfolio of stocks with less capital. Even with a small investment you can end up purchasing mutual funds.
To invest in stock market calls for a degree of expertise and even experience. The risk return trade-offs works out to be an important aspect of equity investing. The best part about mutual funds is that they are managed by professional managers, who have the desired experience and expertise in the choice of funds as per the adjusted levels of returns.
Mutual funds offer a variety of products in order to suit customers as per their risk profile and even the investment objectives. In addition to equity funds there are also balanced funds and even liquid funds as part of the product basket of funds.
Disciplined form of investing
The share market price is very volatile and as an investor you can end up buying or selling shares at short intervals of time due to greed. If you trade frequently as a trader you can end up suffering from losses. For mutual funds it is encouraged that a user keeps a long investment horizon in mind that would be really important to develop wealth.
With the help of systematic investing, as an investor you are forced to set aside a particular sum of money every month to cough up on your long term investment objectives. Most of the investors do not pose a corpus fund as they do not follow a disciplined pattern of investing. Saving is one of the ways to develop a fund.