ADVANTAGES & DISADVANTAGES OF MUTUAL FUNDS

ADVANTAGES OF MUTUAL FUNDS:

Mutual funds have designed to provide maximum benefits to investors, and fund manager have research team to achieve schemes objective.  Assets Management Company has different type of sector funds, which need to proper planning for strategic investment and to achieve the market return.

1. Portfolio Diversification

Mutual funds  invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small).

2. Professional Management

Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own.

3. Less Risk

Investors acquire a diversified portfolio of securities even with a small investment in a Mutual funds . The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities.

4. Low Transaction Costs

Due  to  the  economies  of  scale  (benefits  of  larger  volumes),  mutual  funds  pay  lesser transaction costs. These benefits are passed on to the investors.

5. Liquidity

An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid.

6. Choice of Schemes

Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options

7. Transparency

Funds  provide  investors  with  updated  information  pertaining  to  the  markets  and  the schemes. All material facts are disclosed to investors as required by the regulator.

8. Flexibility

Investors also benefit from the convenience and flexibility offered by Mutual funds . Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes.

9. Safety

Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

DISADVANTAGES OF MUTUAL FUNDS

The Mutual funds  not just advantage of investor but also has disadvantages for the funds. The fund manager not always made profits but might creates loss for not properly managed. The fund have own strategy for investment to hold, to sell, to purchase unit at particular time period.

1. Costs Control Not in the Hands of an Investor

Investor has to pay investment management fees and fund distribution costs as a percentage of  the  value  of  his  investments  (as  long  as  he  holds  the  units),  irrespective  of  the performance of the fund

2. No Customized Portfolios

The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives.

3. Difficulty in Selecting a Suitable Fund Scheme

Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.