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Any Investment plan has its own advantages, be it for a short term or long term. Investors are usually keen on investing in Mutual Funds because of the risk management. However, needless to say, these investments also come with some disadvantages. This article explain about the advantages & benefits of mutual funds.

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What is Mutual Fund?

A Mutual Fund scheme is a type of financial instrument which is made by a pool of money collected from many investors. The AMCs invest in securities like company shares, bonds, stocks, debts, and other assets by mutual fund companies. The AMCs manage these open-ended investments. Mutual fund companies allocate the fund in different securities. This helps its investors to grow their wealth through their investments

The capital gain on a Mutual Fund scheme depends on the performance of the securities it decides to buy. The market condition is also a factor that determines the value of the particular security purchased.

The income or gain generated from these investments is then distributed among the investors. The distribution is done post deduction of certain expenses, by calculating the Net Asset Value of the scheme.

Mutual Funds can be a higher risk investment but the returns are generally greater than in any other investment plan

Mutual Funds have both advantages and disadvantages. The advantages of investing include professional management, low risk, diversification, liquidity, economies of scale. The disadvantages of investing include the high fee, poor trade execution, tax inefficiency., etc.

Advantages and Benefits of Investing in Mutual Funds in India

The following are explain about the advantages of mutual funds.


The most important benefit of investing in a Mutual Fund is that the investor can redeem the units at any point in time. Unlike Fixed Deposits, Mutual Funds have flexible withdrawal but factors like the pre-exit penalty and exit load should be taken into consideration.


The value of an investment may not rise or fall in tandem. When the value of one investment is on the rise the value of another may be in decline. As a result, the portfolio’s overall performance has a lesser chance of being volatile.

Diversification reduces the risk involved in building a portfolio thereby further reducing the risk for an investor. As Mutual Funds consist of many securities, investor’s interests are safeguarded if there is a downfall in other securities so purchased.

Expert Management 

A novice investor may not have much knowledge or information on how and where to invest. The experts manage and operate mutual funds. The experts pool in money from investors and allocates this money in different securities thereby helping the investors incur a profit. 

The expert keeps a watch on timely exit and entry and takes care of all the challenges. One only needs to invest and be least assured that rest will be taken care of by the experts who excel in this field.  This is one of the most important advantages of mutual funds

 Flexibility to invest in Smaller Amounts 

Among other benefits of Mutual Funds the most important benefit is its flexible nature. Investors need not put in a huge amount of money to invest in a Mutual Fund. Investment can be as per the cash flow position.

If You draw a monthly salary then you can go for a Systematic Investment Plan (SIP). Through SIP a fixed amount is invested either monthly or quarterly as per your budget and convenience.

Accessibility – Mutual Funds are Easy to Buy

Mutual Funds are easily accessible and you can start investing and buy mutual funds from anywhere in the world. An Asset Management Companies (AMC) offers the funds and distributes through channels like :

  • Brokerage Firms
  • Registrars like Karvy and CAMS
  • AMC’S Themselves
  • Online Mutual Fund Investment Platforms
  • Agents and Banks

This factor makes mutual funds universally available and easily accessible. More so, you do not require a Demat Account to invest in Mutual Funds. Mutual funds are easy to buy, track performance and one-click investment with Scripbox.

Learn: how to invest in mutual funds.

Schemes for Every Financial Goals

The best part of the Mutual Fund is the minimum amount of investment can be Rs. 500. And the maximum can go up to whatever an investor wishes to invest.

The only point one should consider before investing in the Mutual Funds is their income, expenses, risk-taking ability, and investment goals. Therefore, every individual from all walks of life is free to invest in a Mutual Fund irrespective of their income.

Safety and Transparency

With the introduction of SEBI guidelines, all products of a Mutual Fund have been labeled. This means that all Mutual Fund schemes will have a color-coding. This helps an investor to ascertain the risk level of his investment, thus making the entire process of investment transparent and safe.

This color-coding uses  3 colors indicating different levels of risk- 

  1. Blue indicates low risk
  2. Yellow indicates medium risk, and
  3. Brown indicates a high risk.

Investors are also free to verify the credentials of the fund manager, his qualifications, years of experience, and AUM, solvency details of the fund house.

Lower cost

In a Mutual Fund, funds are collected from many investors, and then the same is used to purchase securities. These funds are however invested in assets which therefore helps one save on transaction and other costs as compared to a single transaction. The savings are passed on to the investors as lower costs of investing in Mutual Funds.

Besides, the Asset Management Services fee cost is lowered and the same is divided between all the investors of the fund.

Best Tax Saving Option 

Mutual Funds provide the best tax saving options. ELSS Mutual Funds have a tax exemption of Rs. 1.5 lakh a year under section 80C of the Income Tax Act. You can use Scripbox’s income tax calculator to ensure tax plan requirement

All other Mutual Funds in India are taxed based on the type of investment and the tenure of investment.

ELSS Tax Saving Mutual Funds has the potential to deliver higher returns than other tax-saving instruments like PPF, NPS, and Tax Saving FDs.

Lowest Lock-in Period

Tax Saving Mutual Funds have the lowest lock-in periods of only 3 years. This is lower as compared to a maximum of 5 years for other tax saving options like FD, ULIPs, and PPF.

On top of that one has the option to stay invested even after the completion of the lock-in period.

Lower Tax on the Gains

With Equity linked saving scheme you can save tax up to Rs. 1.5 Lakh a year under section 80C of Income Tax (IT) Act. All other types of Mutual Funds are taxable depending on the type of fund and tenure.

Before making an investment one should keep in mind the various advantages Mutual Fund provides. Thorough knowledge of the benefits of Mutual Funds would lead to better gains in the future.

Although there are a lot of advantages of investing in Mutual Funds, there are certain disadvantages as well

We will now learn about the disadvantages of Mutual Funds.

Explore Loan Against Mutual Funds

Disadvantages of Investing in Mutual Funds

Cost to Manage the Mutual Fund scheme

As mentioned above, Market Analysts or Fund Managers manage and operate the mutual funds. These Fund Managers work for the fund houses that manage huge investments every day. This requires a lot of efficiencies, expertise, and experience in the subject matter.


Due to dilution, it is not recommended to invest in too many Mutual Funds at the same time. Diversification, although saves an investor from major losses, also restricts one from making a higher profit.

Lock-in Periods 

Equity-linked Saving Scheme (ELSS) have a longer lock-in period of 3 years. This debars an investor from withdrawing the investment before the lock-in period is over. However, withdrawing these funds before the lock-in period could lead to huge penalties. 

A portion of the fund is kept in cash to safeguard investor’s interest . This is done to compensate the investor in case he desires to withdraw the fund before maturity. This part of the cash fund does not earn any interest.

In spite of it having certain disadvantages, Mutual Funds in India are considered one of the best investment plans. The advantages and long term benefits one incurs when investing in a Mutual Fund makes it a win-win situation for all. The professional expertise makes it easier even for a novice to investing without having any idea about it.

Here at Scripbox our expert market professionals analyze and research the different Mutual Funds available. With proper market research, we bring to you the best investment plans which would allow our investors to gain profits. 

How to Invest in mutual funds through Scripbox?

To achieve their financial goals one needs to go through a lot of processes that may not be simple for a new investor. We, at Scripbox, make sure that our investors achieve their financial goals. We ensure that the investing journey of our esteemed investors is smooth and hassle-free. Mutual Funds are easy to buy and track with Scripbox

We understand our investors and accordingly have scientifically and algorithmically selected Mutual Funds. Our experts have set a comprehensive plan using our advanced tools to estimate the goals of our investors. We also create a personalized financial plan keeping in mind the goals of our investors.

At Scripbox, we allow our investors to choose how their investments grow while balancing the growth and risk ratio. Investors are also free to change their investment styles along the way. Our investors are free to track their progress from time to time.

Once the financial goal of an investor is achieved, the investors are allowed to glide their path by moving to lower risk plans. This helps them in securing their gains and thereby reducing the mark to market risk. 

Steps to invest

  • Start Investing through Scripbox for the following benefits:
  • Scientifically and algorithmically selected Mutual Funds
  • Annually reviewed
  • One-click Investment
  • Easy to Track
  • Customizable to suit the investment
  • Helps achieve wealth goals

To invest through Scripbox one needs to open an account with Scripbox by clicking on SIGN-UP and providing the data we need. Once an account is opened you can start investing depending on the following things:

  • If the investor has already done the one time Know Your Customer (KYC) for Mutual Funds
  • One Time KYC for first time Mutual Fund Investors.
  • Monthly Systematic Investment Plans (SIP)for automated investing.

Check Out How to Choose Mutual Funds

Comparing Mutual Funds with other Investment Option

Inflation always has an adverse effect on the market scenario. As the value of money decreases with inflation, it becomes very important to invest your money in the right sector. Money left uninvested may lose its purchasing power as time passes. 

It is very important to know where and how to invest and which channel would fetch the maximum profit.

Investing in Equity brings high risk but the returns are also high as compared to other investment plans. An investor must always keep in mind the risk factor and the investment goal

Time is another factor that an investor must consider before investing such as short term, medium-term, and long term.

Now that we know the advantages of mutual funds, let us now compare Mutual Funds with other investment options

Mutual Fund vs Public Provident Fund (PPF)

PPF is a Long term investment plan with a lock-in period of 15 years. Though this investment is one of the most preferred options, however, due to the reduced return this has started losing its preference.

Moreover, the low returns are subject to higher liquidity and growth. Scipbox’s PPF calculator will help you estimate the interest earned and maturity value. the PPF calculator is easy to use and provides a detailed investment schedule

Mutual Funds do not have any lock-in period. There is flexibility in tenure for which one wants to invest.

PPF’s are tax-free up to a limit of Rs. 1.5 lakh annually. Even the returns generated from PPFs are tax exempted under section 80C of the Income Tax (IT) Act.

With ELSS Fund an investor can save tax up to Rs. 1.5 Lakh a year under section 80C of Income Tax (IT) Act. All other types of Mutual Funds are taxed based on the type of fund and tenure.

Mutual Fund vs NSC 

Talking of low risk and higher returns, NSC is said to be a better option for investment and save tax benefit. ELSS fund, on the other hand, can be invested through Mutual Funds in Equity Market and avail tax benefits depending on risk and returns.

Lock-in period for NSC is 5 to 10 years while in an ELSS Fund lock-in period is 3 years but one can continue even after the lock-in period without taking the cash out.

Mutual Fund vs NPS

NPS as compared to Mutual Fund has lesser returns. NPS has a limited reach to equity, stocks, and shares while through Mutual Funds one can purchase unlimited equity shares.

Mutual Fund vs ULIP

As compared to ULIp’s, Mutual Funds are more transparent in matters of the fee charged and the portfolio holdings. Mutual Funds have lower expenses as compared to ULIPs which are much higher than in the case of Mutual Funds.

Returns from ULIP are lesser as compared to the returns from Mutual Funds. The lock-in period for ULIPs ranges from 3 years to 5 years depending on the investment scheme.

ULIPs too has a tax exemption of Rs. 1.5 lakh a year, while only ELSS funds have tax exemption than any other Mutual Fund.

Mutual Fund vs Fixed Deposit (FD)

In a Fixed Deposit (FD), the returns are pre-determined. The FD bank rates does not change throughout the tenure for which the money is deposited. While in Mutual Funds the scope of earning is unlimited. The longer the tenure the higher the return.

However, you must estimate your expected interest earnings for better planning by using Scripbox’s FD calculator. Our FD calculator is easy to use, accurate results with a detailed guideline on fixed deposits

The returns on Fixed Deposit are taxable at the tax slab of the investor. In a Mutual Fund the taxation mainly depends on the holding period. The tax implication on short term and long term are different for Mutual Funds.

Mutual Fund vs. Gold ETF

An investor can either physically possess or invest upon electronically gold. This has of late become a very popular investment. The risk factor here is relatively low with better liquidity options.

ETF is listed on the Stock Exchange and hence the same is traded in the market with no exit load. This enables investors to buy/ sell at any time. ETFs usually have a lower management cost than Mutual Funds

An ETF with a holding period for more than 36 months, qualify as long term capital gain. LTCG has a tax rate of 20%. The tax saving avenue under section 54 and section 54EC would apply for a long term capital gain on  ETFs.

Also Learn ETF vs Mutual Fund

A lump sum or through SIP in an Equity Mutual Fund?

There are two main ways through which you can invest in a Mutual Fund– Lump sum and Systematic Investment Plan (SIP). 

A Lump Sum Investment is one where you invest a single amount of money in one go.

Systematic Invest Plan (SIP) where you invest small amounts periodically. The frequency of the investment can be either weekly, monthly, or quarterly depending on the investor. 

Return in a Lump Sum investment depends on the market. A volatile market can adversely affect the return of a long term investment whereas SIP can still yield good returns.

Lump Sum investment can yield good returns provided the same is timed properly and tactfully. Though it is very difficult for any investor to time their investment correctly failing which one can incur huge losses. 

You should choose a Lump Sum investment if you can invest for a long time with a high capability of taking risks. Debt investments are for those who have a lower risk-taking capacity but still want to consider Lump Sum investment. Here the returns are moderate but the losses are less. 

SIP enables one to lower the average cost of the investment thereby reducing the risk on the investment. This is called the rupee-cost averaging. An investor can buy Mutual Funds at different prices. This further helps in lowering the purchase cost resulting in higher chances of earning profits.

You can use Scripbox’s SIP calculator to estimate the returns earned and maturity value. The SIP calculator is easy to use and helps you plan your investment to suit your financial goals. Click here to know more on SIP Calculator.

explore our article on factors affecting mutual funds performance

Top Performing Equity Funds to invest in India

The following are the top Equity Mutual Funds as recommended by Scripbox.

Fund NameCategory
Canara Rob Bluechip Equity Fund-Reg(G)Large Cap Fund
IIFL Focused Equity Fund-Reg(G)Focused Fund
Parag Parikh Flexi Cap Fund-Reg(G)Flexi Cap Fund
Canara Rob Emerg Equities Fund-Reg(G)Large & Mid Cap
Nippon India Value Fund(G)Value Fund

Top Performing Debt Funds to invest in India

The following are the top debt mutual funds as recommended by Scripbox:

Fund NameCategory
ICICI Pru Liquid Fund(G)Liquid
HDFC Overnight Fund(G)Overnight Fund
Nippon India Arbitrage Fund(G)Arbitrage
HDFC Floating Rate Debt Fund(G)Floating Rate
Aditya Birla SL Money Manager Fund(G)Money Market
Aditya Birla SL Savings Fund-Reg(G)Ultra Short Duration

Explore: Capital Gain Statement on Mutual Funds

Top Performing Tax Saver ELSS Fund to invest in India

The following are the top tax saving mutual funds as recommended by Scripbox

Fund NameCategory
DSP Tax Saver Fund-Reg(G)Tax Saver
Mirae Asset Tax Saver FundTax Saver

Top Performing Gold Funds to invest in India

The following are the top performing Gold Funds as recommended by Scripbox:

Fund NameCategory
Kotak Gold Fund(G)Gold
HDFC Gold Fund(G)Gold

What are the types of mutual funds?

Below are the four broad types of Mutual Funds:

  1. Equity Funds:-  Investments made in stocks
  2. Fixed-Income Funds:- Investment made in bonds
  3. Money Market Funds:- Short term debts
  4. Balanced Fund or Hybrid Funds:- Stocks and Bonds

Now let us categorize these Mutual Fund investment in India based on the:

  • Asset Class
  • Structure
  • Speciality Fund, and 
  • Investment Objective
Asset ClassStructureSpecialty FundsInvestment Objective
Equity Mutual Funds
1. Large cap Fund
2. Multi cap Fund
3. Small Cap Fund
4. MidCap Funds
5. MidCap Funds and Large Cap Fund
6. Equity Linked Saving Scheme (ELSS)
7. Gold Fund
8. Contra Funds
9. Value Fund
10. Sectoral/ Thematic Fund
Open-ended Mutual FundsIndex Funds

Growth Mutual Funds
Debt Funds or Close Ended Mutual Funds
1. Money market fund
2. Liquid Fund
3. Overnight Fund
4. Short Term Fund
6. Ultra Short Term Fund
7. Mid Term Fund
8. Long Term Funds 
9. Corporate Bond Fund
10. Banking and PSU Funds
11. Gilt Fund
12. Dynamic Bond Fund
Close-Ended Mutual FundsFunds of FundIncome Mutual Fund
Money Market Mutual Funds  Interval FundsCommodity Mutual FundsLiquid Mutual Funds
Balanced Fund or Hybrid Mutual Funds 
1. Balanced Fund
2. Conservative Hybrid Fund
3. Aggressive Hybrid Fund
4. Dynamic Asset Allocation Fund 
5. Equity Saving Fund
6. Arbitrage Fund
7. Multi- Asset Allocation Fund
Asset AllocationTax Saving Mutual Funds 
Equity Linked Saving Scheme (ELSS)

Children Fund
Retirement Fund
Pension Fund


Investing in a good plan not only derives a good profit but also secures one’s life.  Money invested now will lead to a safer tomorrow. Hence, one should plan an investment according to one’s needs and risk-taking capacity

With advantages of mutual funds like expert management, cost-efficiency, hassle-free process, tax-efficiency this makes for a better investment scheme.

In this article, we have explained the advantages of mutual funds and benefits along with the disadvantages. 

We advise investors to estimate the investment returns and maturity before investing. This will ensure your investment plans match your financial goals. You can use Scripbox’s SIP calculator and income tax calculator to estimate your returns and tax plan requirements.

Learn Consolidated Mutual Fund Statement

Frequently Asked Questions

Can I invest 1000 RS in a mutual fund?

One can invest in mutual funds through SIP or lumpsum investment. At the same time, SIP refers to periodic investments of a fixed amount on a predetermined date every month, whereas lumpsum refers to a one-time investment. Most of the mutual funds demand a minimum lump sum investment of Rs. 1000 to 10,000. However, investors can start a SIP of Rs.500 every month. There are some AMCs that accept SIP investment as low as Rs.100 every month. Therefore, investors can choose to invest Rs.1000 or even lower based on their financial capability and future financial goals.

Can I cash out mutual funds?

One can cash out their mutual fund holdings as long as it is an open-ended fund. Both equity fund and debt fund are quickly withdrawn after the investment is made. For instance, an investor can withdraw their mutual fund investment the next day post-investment. However, one should always keep in mind the exit load. i.e. the penalty fee that the mutual fund charges for early withdrawals.
Both equity and debt mutual funds have different periods for exit load. Usually, equity schemes charge an exit load of 1% if the fund is withdrawn within a year.
Furthermore, it takes T+1 days for the funds to receive the investor’s bank account in debt funds withdrawals. For equity funds, it takes T+3 days for funds to credit investors’ bank account. Therefore, liquidity is one of the most significant advantages of mutual funds.

Can you lose money in mutual funds?

The profit and loss in a mutual fund depend on the financial market’s performance and the underlying security performance. Hence, there is no guarantee that you will not lose money in mutual funds. However, it is always advisable to understand how mutual funds work before investing in them. Mutual funds are professionally managed by fund managers who invest in a wide variety of stocks, bonds and commodities. It is not that all mutual funds will fail to perform. Therefore, the profit and loss of a mutual fund depend on various factors such as market volatility, economic growth, stock performance, etc.
When you are losing money in mutual funds, this does not mean that you should start redeeming your funds. One should think twice when you see the markets are performing poorly. Moreover, investment in mutual funds is made for longer horizons. Investors can also choose the SIP route for leveraging the rupee cost averaging benefit. i.e. adding more units when markets are falling.

Is mutual fund better than FD?

Mutual Fund vs FD. The answer depends on your investment goal and preferences. Due to exposure to the equities mutual funds are relatively riskier than fixed deposits. Fixed deposits offer guaranteed returns at the end of the tenure. This is not the case with a mutual fund. The return is completely dependent on the market ups and downs. However, mutual funds have the potential to provide inflation-beating returns in the long-term. If you are an investor who understands the risk associated with equities and has an objective of capital appreciation then mutual funds are a better option. Moreover, if you only want to park your surplus for a shorter period than you may opt for debt funds. Debt funds have the potential to provide returns higher than FDs. Debt funds carry a risk ranging between low to moderate risk. Hence, you must consider this factor before investing. Even if you compare a tax-saving FD and ELSS then as well risk and long-term are the factors you must always consider. Both FD and ELSS provide tax saving benefits under section 80C. But due to equity exposure ELSS is riskier. But ELSS provides inflation beating returns in the long-term. Hence, before investing always set your investment goal, understanding of risk, and tenure. This way you will be able to take a well-informed investment decision.

Is mutual fund tax free?

No, mutual funds are not free. The income or capital gain earned is taxable. Long term capital gain or short term capital gain is applicable depending on the holding period of the mutual fund investment. The tax rate is different for different types of mutual funds and different types of capital gains. However, an investment made in ELSS is tax exempt. This means that if you invest in an equity linked savings scheme then you can claim a tax benefit of up to rs 1.5 lakhs under section 80C of the Income Tax Act, 1961.

What is Blue Chip Fund?

As per SEBI categorization, there is no such fund categorized as Blue Chip Fund. The mutual fund houses use the blue chip as a synonym for large cap fund. Many AMCs use the term ‘Blue Chip’ in the name of the large-cap funds and mid-cap funds. For example- SBI Bluechip Fund, ICICI Prudential Bluechip Fund, Principal Emerging Bluechip Fund, Mirae Asset Emerging Bluechip Fund, etc. However, the term blue chip in the name of the fund does not necessarily mean that these large-cap funds or mid-cap funds invest in bluechip companies. Blue chip companies are large companies with higher growth potential, higher stability, and offer stable and regular growth. The companies such as Reliance, TATA, Infosys are considered as Blue Chip companies. Blue chip funds are basically large cap funds which invest more than 80% of its corpus in large cap companies. Most large cap companies are Blue Chip companies. The large cap fund is an equity oriented mutual fund and hence invests more than 65% of its corpus in securities of large cap companies.

Are mutual fund fees charged monthly?

No, mutual fund charges are not charged monthly. There are many different types of mutual fund fees depending on the type of transaction. Such mutual fund expenses are exit load, entry load, and expense ratio. The exit load is the charge on the redemption of mutual funds. Exit load is charged as a percentage of the NAV on the date of redemption. This percentage differs from one AMC to another. The exit load is charged either as a flat percentage on withdrawal or as a period of holding percentage on the number of units withdrawn. For example No exit load if up to 10% of Units allotted are redeemed or switched out within 1 year from the date of allotment. For example- if redeemed or switched out in excess of 10% of units allotted within one year from the date of allotment an exit load of 1%. Expense ratio is the fee charged by the asset management companies against the annual management of the mutual fund scheme. The TER total expense ratio formula is used to calculate the annual fee percentage. TER = Total expense incurred / Fund’s net assets. Expense ratio is higher for actively managed funds in comparison to the passively managed funds. Entry load is the charge which is charged at the time of purchase of a mutual fund scheme. This expense. The purpose of this expense is to cover the various expenses such as distribution, advertisement, promotion, etc. The SEBI abolished the entry load in the year 2019. Hence, it is not charged by any AMC now.

Check Out IDCW in Mutual Funds