Advantages of Mutual Funds

 Diversification: Diversification, or the mixing of investments and assets within a portfolio to reduce risk, is one of the advantages to
investing in mutual funds. Buying individual company stocks in retail and offsetting them with industrial sector stocks, for example, offers
some diversification. But a truly diversified portfolio has securities with different capitalizations and industries, and bonds with
varying maturities and issuers. Buying a mutual fund can achieve diversification cheaper and faster than through buying individual
securities.
 Economies of Scale: Mutual funds also provide economies of scale. Buying one spares the investor of the numerous commission
charges needed to create a diversified portfolio. Buying only one security at a time leads to large transaction fees, which will eat up a good
chunk of the investment. Also, the $100 to $200 an individual investor might be able to afford is usually not enough to buy a round lot of a
stock, but it will buy many mutual fund shares. The smaller denominations of mutual funds allow investors to take advantage of dollar cost
averaging.
 Easy Access: Trading on the major stock exchanges, mutual funds can be bought and sold with relative ease, making them
highly liquid investments. And, when it comes to certain types of assets, like foreign equities or exotic commodities, mutual funds are often
the most feasible way – in fact, sometimes the only way – for individual investors to participate.
 Professional Management: Most private, non-institutional money managers deal only with high net worth individuals – people with six
figures (at least) to invest. But mutual funds are run by managers, who spend their days researching securities and devising investment
strategies. So these funds provide a low-cost way for individual investors to experience (and hopefully benefit from) professional money
management.
 Individual-Oriented: All these factors make mutual funds an attractive options for younger, novice and other individual investors who
don't want to actively manage their money: They offer high liquidity; they are relatively easy to understand; good diversification even if you
do not have a lot of money to spread around; and the potential for good growth. In fact, many Americans already invest in mutual funds
through their 401(k) or 403(b) plans. In fact, the overwhelming majority of money in employer-sponsored retirement plans goes into mutual
funds.
 Style: Investors have the freedom to research and select from managers with a variety of styles and management goals. For instance, a
fund manager may focus on value investing, growth investing, developed markets, emerging markets, income or macroeconomic investing,
among many other styles. One manager may also oversee funds that employ several different styles. 
Advantages of systematic investment plan(SIP)
There are several theories of investing, retail investors are better off by simply investing consistently. As it is believed that since no one can
time the markets consistently, there is no point in chasing this Strategy. One should look for the cost averaging theory, popularly known as
systematic investment plan (SIP). Systematic Investment Plan (SIP) is a smart financial planning tool that helps you build wealth, step by step,
over a period of time. You can start an SIP for Rs. 2500 per month and benefit from the power of compounding and rupee-cost averaging. This
disciplined approach helps you to hedge the investment against inflation
Advantages
1. Disciplined Investing approach: Some of you may opt for stock options by timing the market to accrue wealth. However, timing the market
calls for market knowledge, research, technical analysis and a lot of time from your end. Further it could also be risky. But through disciplined,
regular investments you can stop worrying about when and how much to invest. In a way, it eliminates the need to actively tracking the market.
And SIP helps you to achieve just that.
2.Takes advantage of Rupee Cost Averaging: Rupee Cost Averaging is an effective investment strategy that eliminates the need to time the
market. All one has to do is to invest a fixed pre decided amount of money on a regular basis for a long period of time. Since the amount
invested is constant one buys more units when the price is low and fewer units when the price is high which may man a lower average cost.
3. Simple, convenient and easy to monitor: You do not have to take time from your schedule to make your investments. With a completed
application form, one can just submit post-dated cheques or avail the Magnum Easy Pay (auto debit) ** facility and relax. You can monitor your
progress of investment through periodic statement of accounts.
  
4. Benefits of Compounding: The key to building wealth is to start investing early and to keep investing regularly. A small amount of money
invested regularly can grow to a large sum. This helps in creating a substantial amount of wealth which includes your own contribution, plus
returns compounded over the years. For example, the following graph demonstrates the effect of returns on monthly investments of `1000 per
month for a period of 30 years.
5. Power of starting early: Helps create wealth: the earlier one starts regular savings, the easier it is for wealth creation. The graph below shows
the impact of starting at various stages in life. `1000 was invested on a monthly basis till the retirement age of 60 years. The rate of return on
investment was assumed at 10% p.a. It can be seen that even a five-year delay can make a significant reduction in overall creation of wealth.
Advantages of Systematic Transfer Plan (STP)
 An STP is a plan that allows investors to give consent to a mutual fund to periodically transfer a certain amount / switch (redeem) certain units
from one scheme and invest in another scheme of the same mutual fund house. Thus at regular intervals an amount/number of units you choose
is transferred from one mutual fund scheme to another of your choice. This facility thus helps in deploying funds at regular intervals.
Advantages
 Consistent Returns – Through STP, you can transfer your money to a target equity fund while you are invested in a debt or liquid fund.
Therefore, you will get the returns of the equity fund you are transferring into and at the same time remain protected as a part of your
investment remains in debt.
 Averaging of Cost – Like SIP, in STP too, a fixed amount of money is invested in the target fund at regular intervals. Since it is similar
to SIP, STP assists in averaging out the cost of investors by purchasing more units at a lower NAV and vice versa.
 Rebalancing Portfolio – STP facilitates in rebalancing the portfolio by allotting investments from debt to equity or vice versa. If your
investment in debt increases money can be reallocated to equity funds through an STP and if your investment in equity goes up money can be
switched from equity to a debt fund.
Advantages of Systematic Withdrawal Plan (SIP)
SWP refers to Systematic Withdrawal Plan which allows an investor to withdraw a fixed or variable amount from his mutual fund scheme on a
preset date every month, quarterly, semi annually or annually as per his needs.
--Rupee Cost Averaging
Let us assume Akash invests Rs 5, 00,000 in Fund A. If the net asset value (NAV) of the fund is Rs 100, then he will hold a total of 5,000 units.
Assuming his parents need a monthly sum of Rs 10,000, if he withdraws Rs 10,000 under SWP, his holdings will decline to 4900 units (i.e.
Rs10000 / Rs100 NAV = 100 units are reduced from his initial holdings) in the first month. Now the NAV of the fund has appreciated to Rs 101 due
to market dynamics. The number of units equivalent to Rs 10,000 i.e. only 99 units would be sold (i.e. Rs 10000/ Rs 101 NAV = 99 units). In five
months, when Akash withdraws a total of Rs 50,000, his effective portfolio would value Rs 4, 50,000. However, his total value is now Rs 4, 79,407;
effectively proving it as a better earning instrument vis-à-vis traditional fixed deposits due to market dynamics. In short, due to rupee-cost
averaging under SWP, you'll turn benefit even when you withdraw. Hence, you earn even on your spends.
----Taxation Benefits
another big advantage of SWP is that it becomes tax efficient for investors. Any gain on sale of equity mutual fund units held for less than 1 year
attracts a short-term capital gains tax of 15%. However, your withdrawals with SWP will be in a smaller amount and in the first year, it will be
your principal amount. Hence, it will not attract STCGT in case you withdraw via SWP. In case of debt funds, short term is defined as 3 years and
any profit made within this duration is classified as a Short Term Capital Gain (STCG) and will be taxed as per your income-tax bracket (i.e.
marginal rate of taxation). And Long Term Capital Gain (LTCG) i.e. investments held for a period of more than 3 years, at 20% tax rate with
indexation. Hence, when you withdraw through SWP, your tax liability reduces to a great extent.
----Disciplined Withdrawal and Fixed Income
SWPSs can be an effective way to bring discipline with saving and provides you with a fixed income at regular interval. This can be a beneficial
avenue for senior citizens and retired individuals who require a fixed income monthly from their investments.

 Growth Option
You may perceive the growth option like a cumulative option. The profits made by the scheme are not paid by way of dividend. Instead, these get
accumulated and form part of the scheme via reinvestment. So, whenever the scheme makes a profit, its NAV rises automatically. Conversely,
when the scheme suffers a loss, the NAV falls. The only way to get back profits is to sell units of the scheme. Suppose you buy 100 units of an
equity fund at an NAV of Rs 40. Under the growth option, the NAV of the scheme rises to Rs 50 in one year. You sell the units and receive a sum
of Rs 5000. Hence, your profits from investment are Rs 1000 (Rs 5000-Rs 4000). Growth option can be suitable for investors having a long-term
investment horizon. It will help them in accumulating corpus for retirement. Moreover, in case you earn a regular income and aren’t in need of
dividends, go for growth option. The growth option on a mutual fund means that an investor in the fund will not receive any dividends that may
be paid out by the stocks in the mutual fund. Some shares pay regular dividends, but by selecting a growth option, the mutual fund holder is
allowing the fund company to reinvest the money it would otherwise pay out to the investor in the form of a dividend. This money increases
the net asset value (NAV) of the mutual fund. The growth option is not a good one for the investor who wishes to receive regular cash payouts
from his/her investments. However, it's a way for the investor to maximize the fund's NAV and, upon sale of the mutual funds, realize a
higher capital gain on the same number of shares he/she originally purchased - because all the dividends that would have been paid out have
been used by the fund company to invest in more stocks and grow clients' money. In this case, the investor does not receive more shares, but
his/her shares of the fund increase in value.
Dividend Payout Ratio
The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. It is
the percentage of earnings paid to shareholders in dividends. The amount that is not paid to shareholders is retained by the company to pay off
debt or to reinvest in core operations. The dividend payout ratio provides an indication of how much money a company is returning
to shareholders versus how much it is keeping on hand to reinvest in growth, pay off debt, or add to cash reserves (retained earnings).  The
dividend payout ratio can be calculated as the yearly dividend per share divided by the earnings per share, or equivalently, the dividends divided
by net income 
Alternatively, the Dividend Payout Ratio can also be calculated as 1 - Retention Ratio
Dividend Reinvestment option.
A dividend reinvestment option is a plan is offered by a corporation that allows investors to reinvest their cash dividends into additional shares
or fractional shares of the underlying stock on the dividend payment date. DRIs are offered by many companies to give shareholders the option
of reinvesting the amount of a declared dividend by purchasing additional shares. Normally, when dividends are paid, they are received by
shareholders as a check or a direct deposit into their bank account. Because shares purchased through a DRI typically come from the
company’s own reserve, they are not marketable through stock exchanges. Shares must be redeemed directly through the company. Although
these dividends are not actually received by the shareholder, they still need to be reported as taxable income. If a company does not offer a DRI,
one can be set up through a brokerage firm, as many brokers allow dividend payments to be reinvested in the shares of any stock held in an
investment account.
Shareholder Advantages of DRIPs
There are several advantages of purchasing shares through a DRI. DRIs offer shareholders a way to accumulate more shares without having to
pay a commission. Many companies offer shares at a discount through their DRI from 1 to 10% off the current share price. Between no
commissions and a price discount, the cost basis for owning the shares can be significantly lower than if the shares were purchased on
the open market. Long term, the biggest advantage is the effect of automatic reinvestment on the compounding of returns. When dividends are
increased, shareholders receive an increasing amount on each share they own, which can also purchase a larger number of shares. Over time,
this increases the total return potential of the investment. Because more shares can be purchased whenever the stock price decreases, the long-
term potential for bigger gains is increased.