Posted on: 20 Dec, 2023
Aside from country-specific regulatory benefits, the benefits and advantages of investing in mutual funds are more or less the same across different types of mutual funds. The main general benefits of investing in any mutual fund are:
1. Access to Expert Fund Management with Little Cost
By investing in the right mutual funds, investors can gain access to the best investment professionals in the country who can deliver good returns on their investments—which can be as low as BDT5,000—in exchange for only 0.5–2% in fees.
Through a mutual fund, it is possible to invest in very small amounts relative to what one would have to invest individually to get exposure to the same securities. As an example, one could include an expensive stock in their portfolio comprised of other stocks by investing as little as, say, ~BDT 5,000 in a mutual fund, whereas they wouldn’t have been able to even buy a meaningful amount of the stock with BDT 5,000. Such a facility allows one to have a diversified portfolio at a relatively insignificant price.
Furthermore, the mechanism of mutual funds allows for easy tracking of their performance by simply checking their NAV every week rather than monitoring the prices of various stocks or securities.
Other than such small-ticket exposure, mutual funds enable you to increase the value of your position/exposure by investing small amounts periodically, either through SIP (Systematic Investment Plan) or at any random time of your choosing. Typically, people drawing monthly salaries go for SIP as a savings alternative.
2. Tax benefits
Investments in mutual funds are eligible for different tax benefits. All capital gains are tax free for individuals. For dividends, there is tax exemption of around BDT25,000 for open-ended funds. In addition, investments in mutual funds qualify for investment tax rebates further reducing tax burden.
3. Investor protection
Due to their structure, mutual funds investments are considered quite secure. Fund trustee and fund custodian ensure client assets are not held by the asset manager and that the asset manager acts in the best interest of the investors. The securities regulator brings in an added layer of compliance. Funds get audited every year and the fund manager has to share portfolio and financial statements every quarter.
Despite a secure structure, there are occasional lapses where client protection is not guaranteed. These are not a function of the structure but rather poor enforcement of the existing rules. By choosing ethical fund managers, investors can avoid these problems.
4. Liquidity
With the exception of some mutual funds and aside from factors like a pre-exit penalty, a mutual fund investor could redeem (sell) their units at any point in time. Such flexible withdrawal allows investors to convert their units in the fund into cash anytime, making mutual funds a very liquid investment vehicle in general.
To learn about how to invest in mutual funds, you may read this post.
To learn more about mutual funds, you may read our guide on mutual fund investing.
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