Mutual Funds, historically, have proven to be much better investment avenues than
other products available to investors. Investments in MF have proven to be more
effective because of the following reasons:
Managed by professionals: Financial experts invest in equity and fixed income
products invest on your behalf.They are supported by large teams which assist
them in analyzing data and dissecting nitty gritty of the markets(macro and
micro economic environment, GDP rates, Interest rates and its future outlook,
fundamental analysis into each company that they invest or not invest in) which
clients as individuals might not be able to do themselves.
Better taxation structures: The government of India offers incentives to
customers to invest in mutual funds by providing tax structures. So while your
fixed deposit returns are completely taxable, Investment in debt mutual funds
come with tax indexation benefits (which can lower your taxation burden to
almost as low as 2% as opposed to as high as 30% in Fixed deposits). Investments
in equity mutual funds have only 10% tax (on gains withdrawn above ₹1 lakh in an
year) compared to 30% taxation on FDs. Gains on equity mutual funds withdrawn up
to ₹1 lakh in an year are exempt from tax.
Better Flexibility: Mutual funds are held in units. So you can always redeem
your investment partially while keeping the other investment intact and
untouched. This is unlike fixed deposits where you have to fully withdraw your
investment and pay pre-mature withdrawal charges on the entire amount.
Better liquidity: Open ended mutual funds can be sold anytime. This is unlike
investment like Insurance, PPF, NSC, etc. where you have long lock-in periods
and large pre-mature withdrawal penalties.
Better Diversification: Mutual funds invest in multiple securities. This
diversifies the risk for you much better than other investments.