Advantages and Disadvantages of Mutual Funds

Advantages and Disadvantages of Mutual Funds:

Small Investors wish to invest in varied securities in the market. But due to availability of fewer funds or many other reasons, they are not able to get benefit of such investments. Thus, Mutual Funds are the solution to the above. Mutual Funds are defined as “professionally managed collective investment vehicle”. They can be open –ended, close ended or Unit Investment Trust. Mutual Funds have its own Pros and Cons which are as follows:

Advantages of Mutual Funds:

Fund Management

The finance of investors is managed in a very good portfolio. The Funds of many such investors are invested in different securities to gain the benefit of higher rewarding securities.

Diversification

The investors get diversified platform by investing in Mutual Funds as against investing in one or two securities on standalone basis. This type of investment in a lot of securities with the help of a mutual fund will reduce market risks.

Advantages of Different Securities

The investor gets benefit of return from many securities as their funds are invested by designing portfolio by the experts. These portfolios are very well balanced.

Cheaper Maintenance Cost

As the Mutual Funds Buy and Sell Securities in lot, they have to pay fewer charges and as a result of these, the investors have to bear fewer charges as compared to purchase and sell of individual securities.

Risk Management

Mutual Funds help in managing the risks. Market Risk and Asset Risk both are sheltered by the Mutual Funds. The risk of Market Fluctuation decreases as the Mutual Fund s invests in a lot of securities at a time.

                     

Cover Against Price Fluctuations

Mutual Funds help to save investors against price fluctuations. The mutual Funds purchase securities as per portfolio and when there is certain loss in some securities that can be recovered from the profits of others.

Better Services

Mutual Funds provides services to the

Reinvestment of Return

When the amount of Investor is received by Mutual Fund, and when the Mutual Fund Companies invest such Amount in different securities by designing portfolio, and earn dividends or return, such amount is allotted to the investor and is again reinvested to earn more and more return.

No Liquidity Crisis

The investors can sell their Units of Mutual Funds any time by just paying the charges levied by Mutual Fund Companies whenever they require Cash. Thus it will not hinder the liquidity of the investor in Mutual Funds.

Disadvantages of Mutual Funds:

Charges

Mutual Fund Companies levy lot of charges on the investors that many a times the return earned by the investor is fully utilized in paying such charges.

Solicitation

Many a times investor face problems after investing funds in Mutual Funds as at the time of investing money they are shown so many extra benefits which turns to the curse after they invest their money. It can be by way of lot of charges, lock in period, etc.

Taxes

Profit on Mutual Funds attracts a lot more of taxes resulting in triggering your money. This point is not considered by the Fund manager while dragging you into many tempting schemes. So Mutual Fund carries it with the cost of taxes to be borne by the investor if he earns profit on sale of Mutual Fund.

No Customization

If you invest in Mutual Funds you would not be able to invest in securities of your choice or you cannot switch over from one security to another f you find it more beneficial. This will sometimes lead to loss of huge amount.