If you haven't embraced the idea of multiplicity, you must. A vary portfolio is one that creates a "miscellaneous" mix of different kinds of stocks in non-similar industries, such that you make your best effort to balance your risk of overall loss of value of your portfolio.
Put more simply, you need to have many different stocks so that you're not putting all of your eggs in the proverbial "basket." This manages your risk, and is something that requires vigilance over the changing environment for each specific stock as well as the market overall. Diversification is an ongoing exercise that requires frequent adjustments by trading away and buying new stocks to maintain this risk balance.
By investing in a mutual fund, you are receiving the benefit of diversification of many stocks, without the requirement of large cash outlays to do this yourself. You are investing in a "pooled" fund of cash that supports purchasing these many stock types... again, without having to put up as much cash as you would have to if you were attempting to do the same thing by yourself.
The best part is that for this investment personal time is no required. The mutual fund manager is a better investor than you are. You are receiving the benefit of both the firm's experience as well as the individual experience and expertise of the fund's manager. As individuals, most of us cannot compete with what they have learned from that cumulative experience trading in volatile markets
In mutual funds the more of anything you can buy, the more you can negotiate, and the cheaper that product becomes. It's called "economies of scale" and applies to investing just as it does a case of wine. If you buy one bottle, it's usually 10-20% more per bottle than if you buy a case to receive that 10-20% discount.
If you had to pay transaction and broker fees to purchase 100 stocks in a portfolio, you would quickly see that it would eat into any gains you might experience (or worsen any loss you have) because of those fees. A mutual fund enjoys its economies of scale in purchasing power, and has more money to purchase higher-priced stocks (e.g., Infosys at Rs 2500 per share and MMTC at Rs 30000 per sare), so it does not have to make fractional purchases (or mixed-lot purchases that are not in increments of 100) as you likely would have to get into the stock. Therefore, a mutual fund will always offer a lower total cost to you to invest in many more stocks than you could on your own.
Another great advantage provided by mutual funds is that you can get in and out of the fund without restrictions (excluding Hedge Funds and others which may require minimum time requirements to stay in).
Low cost of asset management: Since mutual funds collect money from millions of investors, they achieve economies of scale. The cost of running a mutual fund is divided between a larger pool of money and hence mutual funds are able to offer you a lower cost alternative of managing your funds.
Equity funds in India typically charge you around 2.25% of your initial money and around 1.5% to 2% of your money invested every year as charges. Investing in debt funds costs even less. If you had to invest smaller sums of money on your own, you would have to invest significantly more for the professional benefits and diversification.
Liquidity: Mutual funds are typically very liquid investments. Unless they have a pre-specified lock-in, your money will be available to you anytime you want. Typically funds take a couple of days for returning your money to you. Since they are very well integrated with the banking system, most funds can send money directly to your banking account.
If you have a bank account and a PAN card, you are ready to invest in a mutual fund: it is as simple as that! You need to fill in the application form, attach your PAN (typically for transactions of greater than Rs 50,000) and sign your cheque and you investment in a fund is made.
In the top 8-10 cities, mutual funds have many distributors and collection points, which make it easy for them to collect and you to send your application to.
Also, India mutual funds are regulated by the Securities and Exchange Board of India, which helps provide comfort to the investors. Sebi forces transparency on the mutual funds, which helps the investor make an informed choice. Sebi requires the mutual funds to disclose their portfolios at least six monthly, which helps you keep track whether the fund is investing in line with its objectives or not.
Be careful, however, given that some mutual funds may have fees attached to the sale of its fund shares. Also, note that, unlike most stocks which trade continually during the trading session, mutual funds trade only once a day, after the fund's Net Asset Value (NAV) is calculated.
