Features and importance of Mutual fund

04/05/2020 3 By indiafreenotes

Most Mutual Funds invest in 50 to 100 different investments based on market capitalisation, sectors and many other demographics. Only on a rare occasion do all stocks decline at the same time and in the same proportion. Hence, Mutual Funds offer a diversified investment portfolio even with a small amount of investment that would otherwise require big capital. Even with big capital, it is extremely difficult and time-consuming to purchase and manage a wide range of investments individually.

While investing in few shares or debentures directly is possible, the risk of potential loss is all on the investor. However, Mutual Funds reduce the risk of loss as the portfolio is largely diversified and the purchases are backed by research and experience of the fund house. Moreover, the loss is also shared with other investors in the same fund. This diversification of risk is one of the key benefits of a collective investment instrument like mutual funds.

Only Sector funds invest across one industry making them less diversified and therefore more volatile.

Professional Management

Mutual Fund schemes are managed by qualified experienced professionals who work towards the fund’s defined objective. These financial experts are accompanied by a specialized investment research team. The experts and their teams diligently and judiciously study companies, their products and performance. After thorough analysis, the best investment option most aptly suited to achieve the scheme’s objective is chosen. This continuous process adds value to your investment and helps obtain higher returns.

While, investors may differ in their investment needs based on their financial goals, currently, they have over 8000+ schemes to choose from to meet their goals. Therefore, mutual funds make the best way one can invest in Equities, Debt or Commodities (mainly Gold)


A mutual fund invests generally buy and sell various asset classes in large volumes allowing investors to benefit from lower trading costs. Investors can get exposure to such portfolios with an investment as modest as Rs.500/-* in mutual funds through a Systematic Investment Plan. Such portfolio would otherwise be extremely expensive to purchase and maintain for an investor investing directly in stock market.


With open ended funds, investors can redeem (encash) all or part of their investments at prevailing net asset value, at any point of time. Mutual Funds are more liquid than most investments in shares, deposits, and bonds. In addition, a standardised process enables quick and efficient redemption allowing investors to get cash in hand as soon as possible. For closed ended schemes, investors can redeem their investments at prevailing Net Asset Value, subject to exit load at specific intervals, if provided in the scheme. In certain schemes, where lock in period is mentioned, investor cannot redeem his investment until that period.


Mutual Funds are the most transparent form of investment. Investors receive detailed information and timely updates about the nature of investments made, fund manager’s investment strategy behind the investments, the exact amount invested in each type of security, etc. Moreover, the performance of a Mutual Fund is reviewed by various publications and rating agencies, making it easy for investors to compare one fund to another.

Rupee-cost Averaging

Rupee cost averaging or SIP provides the investor a disciplined approach of investing specific amount at regular intervals regardless of the unit price of the investment. Therefore, the money invested fetches more units when the price is low and lesser when the price is high. Thus, allowing you to achieve a lower average cost per unit over time. The strategy helps smoothen out market ups and downs in the long run, while reducing the risk of investing in volatile markets.


All Mutual Funds are required to register with Securities Exchange Board of India (SEBI). With investor interest at the helm, SEBI has laid down strict regulations to safeguard investors against possible frauds. It is even mandatory for Mutual Fund distributors to register with Association of Mutual Funds in India (AMFI) and abide the norms laid by the Securities and Exchange Board of India (SEBI) and AMFI for the distributors.

Choice of Investment

Mutual Funds are the only product category that caters to every one’s needs. You will always find a mutual fund that matches your time horizon long, medium, or short; and your risk-taking ability low, medium, high. All this irrelevant of how much you invest, be it a very small investment or a huge Lumpsum. Your adviser will help choose the right fund/s for you keeping in mind your profile.

Minimizing Costs

Mutual Funds help investors to benefit from economies of scale as mutual funds pool money from vast number people with common interest and invest their money in the relevant asset class/classes. This helps the investors share the cost of management of their money.