Yes, the Long Term Capital Gain (LTCG) tax has taken some sheen off the mutual funds, or so it is believed. Investors are now evaluating other marked linked financial instruments that can provide tax free returns.
The fact is that mutual funds, even with the LTCG tax, still stand their ground against other instruments.
Here are 7 features that make mutual funds a preferred investment.
Mutual Fund (MF) schemes are either open ended or close ended. Open-ended mutual fund schemes allow you to buy and sell anytime. Most funds do not have a lock-in thus making them highly accessible.
Options / Variety
Mutual Funds come with a wide variety and options including asset class, strategy and risk levels. In terms of asset class you can choose from Equity, Debt, Hybrid and Gold funds. In terms of strategy, you can get Capital Protection, Credit Opportunities, Equity Savings and Income funds etc. You can even choose from Active as well as Passive styled funds.
Apart from being open-ended, mutual funds allow you to invest from one scheme to another, from one option to another, you can do Systematic investments, transfers and withdrawals and manage your portfolio with great flexibility.
Detailed information about the objective, investment strategy, financial information, comparative ratios, portfolio disclosures, risks etc. are available about each and every scheme. You can do easy comparison using a variety of online tools and choose a scheme that suits your investment objective and risk profile.
Mutual Funds still are one of the lowest cost investment instruments. MFs in India usually have the lowest costs. The expenses are fully disclosed in the offer document of the scheme and what you see is what you get.
SEBI regulates the Mutual Fund industry and is one of the most proactive regulators and has taken several steps along with the MF industry to make mutual funds more transparent and accessible for investors.
You can invest as little as Rs. 500 in a mutual fund scheme, making it accessible by even the smallest of the savers.
The above stated features make them a feasible investment option.
Even though there is a LTCG tax, mutual funds, with their low expenses, shorter lock in period, better and transparent portfolio management seeks to provide potential higher tax adjusted returns.
With this in perspective, mutual funds offer different schemes with varied features with an aim to cater to different requirements of an individual investor. An investor can consult his financial advisor to know in detail about the schemes and also to know about the risk associated to the schemes they are investing in.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.