Mutual funds reduce risk of direct investment in stock market. nvestment in Stock markets offers higher returns on the investments, but to benefits from stock markets it requires a certain amount of knowledge about the Equities, Shares, Debentures, Bonds, etc. Normally, people have limited knowledge about market functioning, yet they invest in the stock market and lose their hard-earned money. To overcome this problem and utilize the advantage of higher returns on investments, Mutual Funds were established.
Investment in Mutual Funds is subject to market risks. Returns are market-driven. Hence returns are not guaranteed or assured. One has to stay invested for the long term to reap the benefit of high returns. In the short term, there are chances of losing the capital also. Return depends upon the expertise and acumen of the fund manager. Returns are subject to Income Tax provisions. Hence, the effective return may be less than the actual return The historical performance of Mutual Funds has shown great returns over the years. Hence Mutual funds have emerged as the most popular way of creating of wealth.