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Pros & Cons of Investing in MF
| 1. Portfolio Diversification: | ||
| Mutual funds normally invest in a well – diversified portfolio or securities. Each investor in a fund is a part owner of all the fund's assets. This enables him to hold a diversified investment portfolio even with a small amount of investment that would otherwise require big capital. | ||
| 2. Professional Management | ||
| Even if an investor has a big amount of capital available to him, he benefits from professional management skills brought in by the fund in the management of the investor's portfolio. The investment management skills, along with the needed research into available investment options ensure much better return than what an investor can manage his own. Few investors have the skills and resources of their own to succeed in today's fast-moving, global and sophisticated markets, | ||
| 3. Reduction / Diversification of risk | ||
| An investor in a mutual fund acquires a diversified portfolio, no matter how small his investment. Diversification reduces the risk of loss, as compared to investing directly in one or two shares or debentures or other instruments. When an investor invests directly, all the risk of potential loss is all his own. A fund investor also reduces his risk in another way. While investing in the pool of funds with other investors, any loss on one or two securities is also shared with other investors. This risk reduction is one of the most important benefits of a collective investment vehicle like the mutual fund. | ||
| 4. Reduction of transaction costs | ||
| What is true of risk is also true of the transaction costs. A direct investor bears all the costs of investing such a brokerage or custody of securities. When going through a fund, he has the benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit passed on to its investors. | ||
| 5. Liquidity | ||
| Often, investors hold shares or bonds they cannot directly, easily and quickly sell. Investment in Mutual Fund, on the other hand, is more liquid. An investor can liquidate the investment, by selling the units to the fund if open-end, or selling them in the market if the fund is closed-end, and collect funds at the end of a period specified by the mutual funds or the stock market. | ||
| 6. Convenience & Flexibility | ||
| Mutual fund management companies offer many investor services that a direct market investor cannot get. Investors can easily transfer their holdings from one scheme to the other; get updated market information and so on. Moreover, Mutual Funds offer multiple schemes allow investors to switch easily between various schemes. This flexibility gives the investor a convenient way to change the mix of his portfolio over time. | ||
| 7. Affordability | ||
| A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This amount today would get you less than quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market. | ||
| Disadvantage of Mutual Funds: | ||
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