Advantages and Disadvantages of Mutual Funds
November 16, 2007
Before investing in mutual funds an investor should understand if it suits his requirement of not. Therefore one should go through all the advantages and disadvantages of mutual funds.
Advantages of Mutual Funds
- Management: One of the biggest advantage is that in very low cost the investor gets his investment managed by experts. If they want to get the services solely for their investment , it can be very expensive but by investing in MF they can take advantage of the scale.
- Scale Advantage : The transaction costs of a single individual is very less because mutual funds buy and sell in big volumes.
- Diversification: With mutual fund investment your money gets diversified in a lot of things, which helps in minimizing the risk factor. Also if one particular sector doesn’t perform well the loss can be compensated with profits made in other sectors.
- Liquidity and Simplicity: You can sell or buy mutual funds anytime. So mutual funds are good if you want to invest in something which you can liquidate easily. Also, MF is very simple to buy and sell.
Disadvantages of Mutual Funds
- Risks and Costs: Changing market conditions can create fluctuations in the value of a mutual fund investment. Also there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.
- No Guarantees: As Mutual funds invest in debt as well equities, there are no sure returns . Returns depends on the market conditions .
- No Control: Investor does not have control on investment , all the decisions are taken by the fund manager. Investor can just join or leave the show.