Do you suffer from procrastination or freeze with indecision with your investments? Here is a solution that will help you overcome this hindrance…

Is it possible to track over a thousand companies that are fairly liquid and traded? Suppose you have invested in say 20 or 40 stocks; do you get enough time to track them? You will have to keep close tab on companies that you hold in terms of operational and financial performance, future plans and so on. Further, in case of the debt market, you have to follow trends in inflation and interest rates not only in the domestic market but also the international markets.

For you and similarly for several other small and retail investors, time, resources, skills and expertise are key constraints while investing in equities and debt. The simple solution to this problem is to take the mutual funds route .

Advantage 1 – well regulated and transparent

The mutual funds industry has a three-tiered structure sponsors, trustees and AMC – which ensures that your money is in safe hands. It is the trustees that set broad guidelines for fund managers. The guidelines prevent the AMC or fund managers from undertaking any kind of mis-adventure with your money. For instance, as a part of risk management and reduction, fund managers are not allowed to invest in penny stocks. ‘Penny stocks’ refers to stocks that trade below their face value or in single digits with no or little information available about these companies.

Advantage 2 – investment varieties

Mutual funds offer choices to investors on investment options – there are primarily equity funds, debt funds and balanced funds; there are also gold funds.

Advantage 3 – choices on receiving income/profits

You have the option of either receiving dividends (dividend payout option), reinvesting the dividend (dividend reinvestment option) or accumulating the dividend in the scheme (growth option). So if you need cash, go for the dividend option; if you want to grow your investments, opt for the dividend reinvestment or growth option. While in the case of dividend reinvestment, the dividend is declared and reinvested at the current value (which gives you more units), in the growth option, no dividend is declared and your existing units increase in value.

Advantage 4 – professional money management services

A mutual fund is operated by professional managers having expertise in various areas like research, investment, operational aspects of the market, economy and so on. The expertise, skills and knowledge is what the professional managers make available to you. Due to this, it is possible to make informed decisions. The fund managers are supported by subject experts who track happenings on a day-to-day basis.

Advantage 5 – affordable investment

Advantage 7 – minimum paperwork

It is easy to invest in mutual funds. All you need to do is fill in the application form, make out a cheque for your investment amount, offer your identity and address proof and submit it. You can invest directly or through advisors or distributors.

Advantage 8 – tax benefits

Equity linked savings schemes (ELSS) of mutual funds, which invest in equity offer income tax benefits under section 80C of the Income Tax Act, 1961 up to Rs 1 lakh. Further, dividend distributed on mutual fund investments is tax-free in the hands of investors.

If you are a first time equity investor, you can opt for investing under the RGESS (Rajiv Gandhi Equity Savings Scheme) where you get a tax deduction under section 80CCG. The maximum investment under this scheme is Rs 50,000 on which you get a 50% tax deduction i.e. if you invest Rs 50,000, Rs 25,000 is reduced from your tax burden.