Question

For many investors,mutual funds have become the investment of choice. Describe why investors purchase mutual funds.

Answer 1

Mutual funds have several advantages over other investments. Some of the reasons are

a) Managed Professionally

Unlike direct investments, mutual funds are managed professionally by managers who have several years experience in portfolio management. This ensures that risks are effectively diversified catering to the investors' risk profile

b) Varied products mapping the risk return profile

Depending on the risk return profile of the investor,there are varied products available from a fund house to be mapped to the corresponding investor.

c) Option of systematic investment plan

Investors do not have in invest in lumpsum and can choose an SIP which provides added benefit of averaging and compounding. This also ensures that risks inherent in lumpsum investing is diversified.

d) Direct and Regular plan options

Investors have the option to either invest through a fund house or directly if they are knowledgable saving time and money incurred on transaction fees which is comparatively much lesser.

e) Large investor pool diversifying risks across asset class

There are number of asset classes an investor can invest through mutual fund like Debt, Equity, Gold, Real Estate etc thus providing ample opportunity for diversification and risk mitigation.