How We Get Benefit of Mutual Fund

rn1.Risk diversification: - The biggest advantage of investing in mutual funds versus stocks is risk diversification.rnEvery stock is subject to three types of risk: company risk, sector risk and market risk. Company risk and sector risk are unsystematic risks, while market risk is known as systematic risk.rnMutual funds help investors diversify unsystematic risks by investing in a diversified portfolio of stocks across different sectors. 2.Smaller capital outlay:- Mutual funds work on the basis of pooling of money, mutual fund investors can have the beneficial ownership of a diversified portfolio of stocks with a much smaller capital outlay. Investors can buy units of a diversified equity fund with a low investment. 3.Investment expertise: - Investing in stock market requires a lot of experience and expertise.rnMutual funds are managed by professional fund managers who have sufficient expertise and experience in picking the right stocks to get the best risk adjusted returns. 4.Economies of scale in transaction costs:- Since mutual funds buy and sell securities in large volumes, transaction costs on a per unit basis is much lower than what retail investors may incur if they buy or sell shares through stock brokers. 5.Variety of products:- Mutual funds offer investors a variety of products to suit their risk profiles and investment objectives. Apart from equity funds, there are also balanced funds, monthly income plans, income funds and liquid funds to suit different investment requirements. 6.Variety of modes of investments: - Mutual funds also offer investors flexibility in terms of modes of investment and withdrawal. Investors can opt for different investment modes like lump sum (or one time), systematic investment plans, systematic transfer plans (from other mutual fund schemes), systematic withdrawal plans, switches from one scheme to another etc. 7.Disciplined investing: - Share prices are highly volatile and can induce the investor to buy or sell in short time periods due to fear or greed. Frequent trading often leads the investor to incur losses. Mutual funds encourage investors to invest over a long time horizon, which is essential to creating wealth. Furthermore, systematic investment plans encourage investors to invest in a disciplined manner to meet their long term financial objectives. Many investors fail to build a substantial investment corpus because they are not able to invest in a disciplined way.