What are the benefits of investing in Mutual Funds in India

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benefits of mutual funds

Mutual funds are among the most popular investment options in India. They are not only safe and involve much less risk than other investment instruments, but also allow every individual to invest regardless of their budget. If you're planning to invest in mutual funds, then check out these best benefits of mutual fund investment

What are Mutual Funds?

Mutual fund is a financial tool that collects money from different individuals and then invests it in different securities like bonds, stocks, policies, etc. Each investor in a MF scheme is provided with units of the mutual fund. These units represent the holdings of an individual in that scheme. Further, the mutual funds are managed by different AMCs (Asset Management Companies), which in turn appoint qualified and experienced fund managers to manage different MF schemes. Let's now discuss the benefits of investment in mutual funds. 

Benefits of Mutual Funds in India 

Following are the key benefits of mutual fund investment:

1.Managed By Experienced Professionals 

One of the biggest benefits of investing in mutual funds is that they are managed by highly experienced and qualified professionals that are backed with a powerful research team that analyzes and monitors the performance of different companies and finds out the best investment options for the investor's portfolio. 

2. Offers Portfolio Diversification 

A diversified portfolio is the rule of the thumb when it comes to stock market investments. And the best way to achieve portfolio diversification is investing in the right mutual fund schemes. They allow you to invest in multiple companies across multiple industries and sectors of the economy. This diversification not only reduces the risk, but also offers you a good chance to earn better returns in future. 

3. Offer Better Return Potential 

Mutual funds are known for providing higher returns over a medium to long investment horizon. 

4. Easy and Convenient 

Mutual fund investments don't involve a lot of paperwork and this helps in avoiding problematic issues like delayed payments, frequent follow up with brokers, bad deliveries, and more. Mutual funds are very convenient and save a lot of time and effort. 

5. Doesn't Require Big Capital 

Another great advantage of mutual funds is that they don't require a hefty initial investment. You can start investing with as less as Rs. 500 via methods like SIP (Systematic Investment Plan). Any investor regardless of their budget can invest in MFs to earn good returns over time. 

6. Offers Great Transparency 

Mutual funds are very transparent. You get notified about each and everything about the scheme and its operations. You will have the information of where your fund is invested, how many units you're allotted, balance statements, and whatnot. 

7. Higher Liquidity 

In the case of open-ended mutual funds, you can redeem your amount at the NAV (Net Asset Value) of the mutual fund. The only exception is for the equities that come with a three year lock-in period. With close-ended mutual funds, you can sell your units at the stock exchanges at the market price or directly repurchase at the net asset value related rates, which are periodically offered by some close-ended schemes. 

8. Variety of Schemes to Choose From

You can select a mutual fund scheme that matches your financial goals and objectives from a plethora of schemes available in the market. 

9. Higher Flexibility 

Mutual fund investments are very flexible. You can select a suitable scheme and start investing in any way you want. You can start an SIP if you have a low capital or invest a lump sum amount. 

10. Properly Regulated 

All the mutual funds in India are registered with SEBI and hence, they are properly Regulated. They function within regulatory provisions designed for the safety of investors. 

Things to Consider Before Investing in Mutual Funds 

Now that we have discussed the benefits and reasons for investing in mutual funds, it's the right time to discuss the factors to consider before starting your first mutual fund investment. Have a look at the below points:

Fix Your Financial Goal and Budget 

Identifying your financial objectives, budget, and investment horizon plays a very important role in deciding your success in the stock market. By doing this, you can decide how much you can invest without affecting your financial health. Moreover, you should also consider your risk tolerance before investing. Always remember, the key to get success in the stock market is to invest with clear goals and plans in mind. 

Choose the Right Type of MF

Selecting the right mutual fund type takes a lot more than just reading about MFs on the internet or listening to the advice of your colleagues. Experts mostly suggest a debt or balanced fund for beginner investors because it involves the least risks while offering decent returns. 

Select Any One Mutual Fund

With tens and hundreds of mutual funds in a plethora of categories, you need to study and compare them to select the best one that fits your interests. When you pick the mutual funds, don't forget to check out the factors such as portfolio credentials, fund manager's profile, asset under management, portfolio components, etc. 

Keep Your Portfolio Diversified 

Don't invest all your money in a single mutual fund scheme. Instead, invest in multiple schemes to keep your portfolio diversified and earn returns in a low-risk environment. 

Choose SIP Over Lump-sum Investments

For investors investing in equity funds for the first time, it is recommended to invest via SIP (Systematic Investment Plan) rather than a single time lump-sum investment. Generally, a lump-sum investment is likely to expose you to the stock market risks, but a SIP allow you to keep your investment balanced and spread across different market levels. 

Make Sure Your KYC Documents Are Updated 

You can not simply invest in a mutual fund scheme if you haven't have your KYC (Know Your Customer) documents ready. Note that, KYC is an important regulation for almost all kinds of financial transactions in the country. This is done to prevent money laundering and identify the source of funds. You need to have a PAN card along with a valid address proof to become KYC compliant. 

Open Your Net Banking Account

Make sure that you've activated net banking on your bank accounts. Although you can invest in mutual funds via cheques and debit cards, it is always better to use net banking to keep the process safe and straightforward. 

How to Start Investing in Mutual Funds in India? 

You can directly invest in mutual funds with a registered Asset Management Company or AMC, by purchasing their direct plan. For this, you need to complete your KYC process at a KYC registration agency. This can be done online by filling a KYC form and uploading your documents like self-attested PAN, a photograph, and address proof like voter ID, Aadhar Card, Driving License, Passport, etc. 

Further, you will also need to complete In-person Verification by a SEBI approved agency. 

Besides, you can also invest in MF scheme via a distributor by choosing their regular plan. Here, the mutual funds houses pay commission to these brokers or distributors. To invest offline, you can visit your nearby mutual fund house and submit your KYC documents and fill the application form. 

How Can I Invest In Mutual Funds Online? 

You can directly invest in the mutual fund house by purchasing their direct plan online. For this, visit their official website, and provide the necessary details like your name, address, email ID, contact number, bank details, etc. 

Further, you can also complete your KYC online by visiting eKYC. Here you will need to provide your Aadhaar and PAN card details, which will be verified by the registered officials. Once done, you can start investing by transferring money from your bank account online. 

Besides, you can also start investing online via registered investment platforms like INDmoney


Over the years, mutual funds have evolved into an easy and relatively low-risk investment option among the investors. We have discussed all the benefits of investing in mutual funds in 2022. We hope it helps! 

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