About
Mutual Funds
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Outlined below are some of
the advantages and disadvantages of mutual funds. Every
investment has advantages and disadvantages. But it's important
to remember that features that matter to one investor may
not be important to you. Whether any particular feature
is an advantage for you will depend on your unique circumstances. |
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Advantages : For some investors, mutual funds provide
an attractive investment choice because they generally offer the
following features:
Professional Management:
Professional money managers research, select, and monitor the
performance of the securities the fund purchases.
Diversification:
Diversification is an investing
strategy that can be neatly summed up as "Don't put all your
eggs in one basket." Spreading your investments across a
wide range of companies and industry sectors can help lower your
risk if a company or sector fails. Some investors find it easier
to achieve diversification through ownership of mutual funds rather
than through ownership of individual stocks or bonds.
Affordability:
Some mutual funds accommodate
investors who don't have a lot of money to invest by setting relatively
low pound amounts for initial purchases, subsequent monthly purchases,
or both.
Liquidity:
Mutual fund investors can readily
redeem their shares plus any fees and charges assessed on redemption
at any time.
Disadvantages
But mutual funds also have features that some investors might
view as disadvantages, such as:
Costs despite Negative Returns:
Investors must
pay sales charges, annual fees, and other expenses regardless
of how the fund performs. And, depending on the timing of their
investment, investors may also have to pay taxes on any capital
gains distribution they receive - even if the fund went on to
perform poorly after they bought shares.
Lack of Control:
Investors typically cannot ascertain
the exact make-up of a fund's portfolio at any given time, nor
can they directly influence which securities the fund manager
buys and sells or the timing of those trades.
Price Uncertainty:
With an individual stock,
you can obtain real-time (or close to real-time) pricing information
with relative ease by checking financial websites or by calling
your broker. You can also monitor how a stock's price changes
from hour to hour - or even second to second. By contrast, with
a mutual fund, the price at which you purchase or redeem shares
will typically depend on the fund's net asset value, which the
fund might not calculate until many hours after you've placed
your order.
Making any sort of investment involved a certain amount of risk
so it is always wise to seek the advice of a professional before
making any decisions.
Jerry Warner writes general finance and loan articles for the
Bad Credit Loans Online website at http://www.badcreditloansonline.co.uk
