What are the benefits of mutual funds?

Of late there is an increase in awareness on various investment products among investors and it goes without saying that mutual funds have got its own share in 4% of Indian household savings.

So why is mutual fund preferred over direct investment in stocks?For a first time investor who doesnt have much knowledge on investments, mutual fund provides numerous advantages.

1. The most obvious reason in favour of Mutual Funds are that you can make an investment even at Rs 100 per month via SIP. You need not be blessed with huge sum of money to invest in mutual funds. Typical SIP amount per month is 1000-2000 in most cases.

2. Professional management of money put in by investors is an added advantage in mutual funds. Most of us do not have the time and bandwidth to place buy and sell orders in markets in a regular basis. It is always better to leave a job to professional fund managers than we breaking our heads.

3. Another advantage is that a mutual funds invests in a good set of stocks and it is not limited to 1 or 2 stocks. Typically a fund invests in 30-50 stocks and hence there is diversification in investment. It also reduces the risk associated with the failure of single stock.

4.Mutual funds (except for ELSS) have no lock in period. They provide ample liquidity to investors.

5.ELSS - a category of mutual funds which is eligible for tax benefits and at the same time can generate better returns than traditional tax saving instruments over a long period of time.

Keeping these in mind, for a beginner in investments, it is always advisable to opt for mutual funds than directly jumping into stocks.