Investing Fundamentals

Invest in Mutual Fund in India – Key Benefits and Advantages

India is a country that loves to save. Most of all, we love to save money – by taking the train instead of the cab, by bargaining with the vegetable vendors and anywhere possible.

However, the saving habit has no meaningful end. We put away the money in piggy banks, under the mattresses and forget about it for a good number of years. When we find it, it would have become a fraction of its value! Doesn’t sound believable?

Invest in Mutual Fund in India – Benefits and Advantages

The above table tells the following simple fact –

A Rs. 10,000 saving made and hid under your mattress in the year 2000 would have an inflation adjusted value of only Rs. 2,960 if discovered today. That’s inflation working against you!

How did this happen? Weren’t we always told that saving money is good? Well, yes. But that’s only half the story. Did anyone ever tell you what to do with your saving?


Invest to preserve the value of your money over time by earning a return on your money equivalent to the inflation rate.

You can also invest to increase the value of your money over time by earning a return on your money greater than the inflation rate.

Next logical question would be – invest where?

Invest in mutual funds online!

Benefits of Mutual Fund Investments in India

The mutual fund investment rage in India is not for nothing. Mutual funds have proven over the last two decades that they could be used for multiple purposes.

A lot of people do not know that not all mutual funds invest in the notoriously unpredictable share market! They are a number of mutual categories that invest in various asset classes. These asset classes have unique risk-return profiles.

For example, you can earn a higher post-tax return on debt mutual funds than you can by simply parking your money in your savings bank account or fixed deposits.

There are multiple advantages associated with mutual fund investments in India. Let’s have a look at the most prominent ones. One of them might just prompt you to start investing!

A Mutual Fund for Every Requirement

Invest in Mutual Fund in India – Benefits and Advantages

The best thing about mutual funds is that there are multiple categories of mutual funds. Each mutual fund category has a unique risk-return profile. Moreover, the optimal investment horizon for every mutual fund category is different.

So, when starting with your mutual fund investment, you need to learn about the different types of mutual funds. And then make a decision as to which mutual fund would best suit your particular requirement.

For example – if you are looking to create an emergency corpus and thinking about equity investments, that wouldn’t make the most sense. Equity mutual funds are suitable only for investment horizons of greater than 5 years. An emergency fund should ideally be parked in a pool of liquid funds which is one of the safest mutual fund categories around.

Mutual fund categories are many which means that although there is no dearth of options, it is important that you properly identify your investment purpose and accordingly select the best option there is.

Pay Less Taxes

ELSS (Equity Linked Saving Scheme) is a mutual fund category which if invested in can help you save up to Rs. 46,500 in taxes every year.

Know more about ELSS here.


Invest in Mutual Fund in India – Benefits and Advantages

People tend to believe a mutual fund investment is a black box. Everything that the fund manager (the guy managing your money) does is in stealth mode. However, this is not the case.

The fund and fund manager are bound by some strict rules like –

  1. Making the mutual fund holdings public every month
  2. Making the fund NAV (Net Asset Value = price of 1 mutual fund unit) public every day

Moreover, you have so many platforms that update your mutual fund holdings in real time. And you can check on your portfolio value and return at any point in time.

Additionally, if something goes downhill with a certain fund house, rules mandate that your and other investors’ best interests be protected. If a fund house is about to shut down, your money is first returned to you at the prevailing NAV. If a fund house is about to sell off its business to another fund house, you are given the option of a penalty-free exit if you are not happy with this transition.

You’d be surprised to know that your mutual fund investments are safer than your fixed deposits! How?

Well, as I mentioned that there are many provisions in place which ensure that no fund house runs away with your money. But have you wondered what happens to your fixed deposits if the bank shuts shop?

In the case of a bank closing down, only up to Rs. 1,00,000 is insured from being lost per account. This includes the principal as well as interest of savings bank account, fixed and recurring deposits.

What if your cumulative deposits are greater than Rs. 1,00,000 and the bank closes down? Well, you are supposed to forget that you ever had that money.


Mutual funds are highly liquid. Except for the ELSS category mutual funds which has a 3-year lock-in, you are free to withdraw your mutual fund holdings whenever you like. Lock-in periods may apply to some funds – but you would know it beforehand.

But the most invested category of funds (open-ended funds) have a no-questions-asked exit provision. If you need money urgently, you may redeem from the funds.

There might be some costs associated with the easy liquidity in some cases. For example, if you redeem any equity mutual fund purchases within 365 days, you will be eligible to receive only 99% of the redemption value. 1% is penalty charged as exit load.

All in all, mutual funds are extremely liquid and if mutual fund liquidity has ever been a concern for you, it should cease to be from now on.

Ease of Transactions

Invest in Mutual Fund in India – Benefits and Advantages

What is the procedure of buying a mobile phone?

Either you visit an electronics shop in your area or you order one online. What’s more convenient? Of course, the online method. You don’t even have to move from your place to buy a mobile phone.

Consider a mutual fund transaction as simple as buying something from an e-commerce website. Here are the steps and you will see how similar the two are –

  1. Create an account on a mutual fund transaction website
  2. Select the mutual funds you wish to invest in
  3. Make payment using you net-banking account

If you have heard of the mutual investment mechanism (SIP) wherein you invest a fixed sum of money every month, the procedure is as simple as it gets. You simply have to issue a mandate that will facilitate for the auto-debit of your bank account. As seamless as it gets!

You also have the traditional option of visiting a nearby mutual fund, RTA office and transacting using a cheque. Not only is this method old-school, but also more time consuming than the online method.

Become Comfortable by Starting Small

You don’t have to be a millionaire to invest in mutual funds. Nowadays, it is possible to start with amounts as small as Rs. 100.

This is great because you can try mutual funds out with small amounts before fully committing to them.

Low Cost

This might be a bit controversial. Most people feel that the typical mutual fund expense ratio (fund charges) is a bit too high. But it is not!

Because mutual fund investment is not a personalised service, the costs related are substantially lower than a quasi-personalised investment service like PMS (Portfolio Management Service)

Without going into intricacies, mutual funds are like public transport where the higher number of participants make everything affordable while a PMS is like taking a cab with no more than 2-3 more passengers.

So, there you have (all?) the key benefits of investing in mutual funds in India. Which benefit prompted you to start your mutual fund investments? Let us know in the comment section!

About the author

Anurag Bhalerao

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