Benefits of investing in mutual funds

Published on September 26, 2025 | 3 min read

Summary

Mutual funds are investment vehicles that pool money from various investors and invest in various investments and securities to offer maximum returns to investors. Mutual funds are suitable for beginners and investors who lack time or experience and are seeking long-term wealth creation. There are different types of mutual funds you can invest in, depending on your risk tolerance and financial goals.

Key Takeaways

In FY26, the Ministry of Finance reported a significant increase in mutual fund active investors, reaching 5.9 crores at the end of December 2025.
Average monthly SIP flows have increased sevenfold, rising from under ₹4,000 crore in FY17 to over Rs 28,000 crore in FY26, signifying increased participation.
According to Value Research, in the last decade, mutual funds delivered an average return of 5.70%–15.95%, depending on the type of fund.
Types of mutual funds: Equity, Debt, and Hybrid funds.

Introduction

According to a press release issued by the Ministry of Finance, Indian households are shifting from traditional physical real estate and gold investment to equity and mutual funds. AMFI reported an on-year increase of 23.11% in the mutual fund industry's assets under management (AUM), surging from ₹53.40 lakh crore in March’24 to ₹65.74 lakh crore in March’25.

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Participation in the mutual fund industry is rapidly increasing, with average monthly SIP flows rising sevenfold, from under ₹4,000 crore in FY17 to over ₹ 28,000 crore in FY26. Domestic flows from individual and institutional investors have cushioned the impact of volatile foreign capital flows, providing support to the markets.

According to a report by Redseer, India’s stock market grew at a 17% CAGR over the last two decades and is expected to rise further, cementing its position as the 4th largest stock market in the world. India is experiencing rapid growth, and if you want to participate and benefit from this growth, you can invest in mutual funds.

Types of Mutual Funds

There are different types of mutual funds you can invest in based on your risk tolerance, financial goals, and duration.

Equity Mutual Funds

Equity mutual funds invest predominantly (at least 65% to 80% of total assets) in equity and equity-related securities. Equity funds are further categorised into schemes that invest in specific themes, sectors, and market capitalisation.

Equity funds offer potentially high returns to investors with a high risk tolerance and have delivered an average return of 9.11 to 15.95%.

Debt Mutual Funds

Debt mutual funds invest in debt instruments such as government securities, corporate bonds, and money market instruments. Debt funds are further classified based on the duration of the debt instruments. Debt funds with dividend payout options provide regular income to investors.

Debt funds are suitable for risk-averse investors seeking low-risk investments with stable returns. In the last decade, debt funds delivered an average return of 5.43% to 6.90%.

Hybrid Mutual Funds

Hybrid mutual funds invest in a mix of equity and debt instruments in a predetermined allocation. These funds are further subdivided based on investment approach; for example, aggressive hybrid funds invest a larger portion of the total assets in equity, while conservative hybrid funds invest the majority in debt instruments.

Hybrid funds carry moderate risk as they diversify investments across different asset classes and are suitable for investors seeking the high potential returns from equity and the stability of debt investments. Hybrid mutual funds delivered an average return of 5.70% to 11.29% in the last decade.

Benefits of Investing in Mutual Funds

Professionally Managed

Mutual funds are professionally managed by experienced fund managers with a strong track record of profitable investments. These fund managers are responsible for handling the fund’s investment and making informed decisions to maximise returns for investors.

Diversification

In mutual funds, your money is invested across multiple companies within a specific category rather than being concentrated in a single company. For example, a Large-cap Mutual Fund would invest in companies with large market capitalisation. This helps diversify your investments and mitigate portfolio risk.

Liquidity

Open-ended mutual funds are highly liquid. You can easily buy or sell/redeem your mutual fund units at any time.

Affordable and Flexible Investment

You can invest in mutual funds via SIPs of as low as ₹500 or through a one-time lump sum investment. This makes investing flexible and affordable.

Tax Benefits

Investments in ELSS (Equity Linked Savings Scheme) funds are eligible for tax deductions of ₹1.5 lakh per financial year under Section 123 of the Income Tax Act 2025, allowing investors to save up to ₹46,800 in taxes.

Mutual funds are a suitable investment for investors seeking passive investments to earn long-term capital appreciation with affordable and flexible payments. Review the fund's manager, historical CAGR compared to the benchmark, and expense ratio, and select a mutual fund that aligns with your risk tolerance and financial goals.

FAQs

What Are Mutual Funds?

Mutual funds are an investment tool that pools money from various investors and invests in securities such as corporate bonds, stocks, and government securities. Mutual funds are managed by professional fund managers and offer a hands-off investment approach to novice investors and those lacking skill and time.

What Are the Types of Mutual Funds?

You can invest in various types of mutual funds, such as Equity, Debt, and Hybrid mutual funds.

What Are the Benefits of Investing in Mutual Funds?

Investing in mutual funds offers diversification, professional management, and high liquidity to investors, allowing them to create long-term wealth with affordable and flexible investments.

How Can I Start Investing in Mutual Funds?

You can start investing in mutual funds through SIP or one-time payments, depending on your investment approach. You can directly invest in mutual funds by visiting the fund’s web portal or via a trusted, SEBI-registered broker like Upstox.

About Author

Mariyam Sara

Sub-Editor

holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.