Importance Of Mutual Funds

Mutual funds provide a host of benefits which make them important. Let’s look at the
importance of mutual funds as listed below.

Convenience: 
For investors, one of the most prominent benefits that mutual funds provide is convenience. By
investing in a single fund, they can gain access to a broad range of the financial market. A typical
diversified equity fund can spread out the money across tens of stocks with some portion
invested in fixed income securities as well.

Diversification:
Further, if an investor wants to focus on one segment of the market, for instance, large-cap
stocks, funds focused on this segment can spread out the investment across multiple large-cap
stocks in just one transaction of purchasing the fund. If the investor were to try to do that
themselves, it would take a lot of effort, transaction cost, and time to create an individual large-
cap stock portfolio. The situation with investing in bonds is even more difficult if one tries to do
it individually rather than taking the fund route.

Ease Of Investment:
Apart from this, mutual funds are easy to buy and sell. One can either engage the services of a
distributor or agent to transact in funds or do it over the internet themselves. In the case of latter,
the transaction amount is debited from or comes directly to the bank account linked to the mutual
fund account depending on whether a fund has been bought or sold.

Spoilt For Choice:

This feature follows from the convenience aspect discussed above. Investors have several
choices when it comes to mutual funds. And given their investment objectives, funds provide
access to a wide range of financial instruments, sectors, and strategies.

Professional Management:
This is one of the factors, which is a key highlight of the importance of mutual funds. Due to
lack of expertise several investors don’t have the confidence in taking the financial market route
to grow their wealth. They feel they have limited or no capability to invest in stocks and bonds
on their own and do not have the time to keep tracking their investments even if they manage to
invest on their own.
Mutual funds take care of this issue by providing the expertise of the fund manager and their
team of analysts, which perform the analysis of financial markets and instruments on a daily
basis. They charge a fee for their professional services, which are bundled into the expense ratio
of a mutual fund.

Some fund managers also invest in the same fund(s) that they manage, thus making them
accountable for their performance; they have a stake in the fund doing well. This expertise and
experience in money management make mutual funds a great vehicle for investors.

This assumes a lot of importance for investors as by investing minimal time and energy, they can
add a variety of instruments to their investment portfolio.