Advantages and disadvantages of mutual funds

Advantages and disadvantages of mutual funds

Meaning of Mutual funds:- A mutual fund is a group of investors who purchase the portfolio of stocks and bonds through a fund manager. It is an instrument of investment, where we provide money to a fund institute and authorise them to invest and manage our money. But there are someadvantages and disadvantages of mutual funds

ADVANTAGES OF MUTUAL FUNDS

There are some advantages which are given following as

Convenience and flexibility
Affordability
Diversification of funds
Small investments
Professional Managed fund
Spreading Risk
Transparency and Interactivity
Liquidity
Choice
Regulations
Low transaction cost
Tax benefits

(1). Convenience and flexibility:- Mutual funds investment are more convenient and flexible than share or bound holding. As it provides readymade convenience and flexible service to the investors, like transfer from one securities to another funds, sale and redemption.

(2) Affordability:- In a mutual fund, any investor could start his investment with the basic amount as Rs.500. Whereas it will be expensive in other investments. If any investor does it by himself. It will be expensive to buy shares and bounds.

(3). Diversification of Benefits:- Diversified investment always minimises the risks. Which is the biggest advantage of a mutual fund. So due to the pooling of capital, all individual investors can derive benefits of diversification. advantages and disadvantages of mutual funds

(4). Small Investment:- Throughout the mutual funds, money of investors can be spread in small bits across various companies. Due to which investors get benefits of a diversified portfolio with small investments. advantages and disadvantages of mutual funds

(5). Professional Managed funds:- The pool of money which is collected by the mutual fund is managed by the professionals who possess considerable expert, and experienced persons. Because no headache is taken by the investors, rather all this is processed by professional managers. advantages and disadvantages of mutual funds

(6). Spreading Risk:- Mutual funds diversified collected money across different industries. So it does not diversify risk, but also helps to take benefits of the hold position.

(7). Transparency and interactivity:- Mutual funds clearly represent their investment strategy to their customers and also provide the information regarding the values of their investment. A complete report on investing is provided to the investors along with a proportion report on various assets types in which invested.

(8). Liquidity:- Some funds in the mutual funds are sold at their market values as these are listed on the stock exchanges. Because such funds are directly redeemed to the mutual fund institute, When they are announced to repurchase in the market. So mutual funds also provide liquidity to the investors.

(9). Choice:- There are a variety of funds which can be chosen by the investors while they are purchasing funds in the market. They can select that funds are suitable for their expected risk and return. So choices are large in the mutual funds. advantages and disadvantages of mutual funds

(10). Regulations:- All functions which are created in the mutual fund. These all created by the management of SEBI. Which are constructed by keeping into view the interests of the investors. Because all mutual funds are registered with the Sebi. Thus, every company must have to follow the rules of sebi, while they are investing in different portfolios of investment. advantages and disadvantages of mutual funds

(11). Low Transaction costs:- The transactions of Mutual funds are generally very large. These volumes attract lower brokerage costs, commission and other costs. Which may be higher cost on the individual basis transactions of the securities. Because overhead cost does not vary on large and small transactions of funds. Rather, for a large transaction these will enable the lower costs.

(12). Tax Benefits:- Specific funds of mutual funds as ( Equity linked savings Schemes ) give the benefits of deduction to the investors from their taxable income. Further, the dividend that the investors receive from the scheme is tax free in their hands. This mutual fund investment helps in the taxation while investors calculate their income.

Disadvantage Of Mutual Funds

However, here are some disadvantage of the mutual fund while its having advantages, But some of disadvantages are following as

No Control over the Investment
No Guarantee for return on their investment
Costs and Risks

(1). No Control over the Investment:- Because investors have no direct control over the investment. They can\’t interfere as per their desire to revise their investment. Rather all decisions are taken by the fund managers without the interference of investors. However, they represent the whole strategy for the investment in the mutual funds. Thus, the willingness of the investors are ignored by wholely. advantages and disadvantages of mutual funds

(2). No Guarantee for the return on their investment:- In the investment of mutual funds, there is no guarantee for certain return by regularly. Because mutual funds invest in debt as well as equities. So the return depends upon the market conditions. As market conditions fluctuate always and never stable in the long run. Thus, it is difficult to expect a certain return from the mutual fund investment.

(3). Costs and risks:- Changing conditions may change the value of investment of mutual funds. Sometimes hidden costs are to be incurred in the mutual funds whereas these costs disappear, while investors purchase individual security.

Conclusion:- From the above discussed advantages and disadvantages, we can conclude that mutual fund investment is more beneficial whereas it has some disadvantages on the way of its investment. If we measure based on the risk, such an opportunity of investment is the best option for investors.

However, if we talk about the return of investment in the mutual fund, it does not provide a certain return. So due to such reasons mutual funds have some advantages and disadvantages. advantages and disadvantages of mutual funds

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