What is Mutual Fund - Advantages and Disadvantages

 

What is Mutual Fund - Advantages and Disadvantages

What is Mutual Fund?
Mutual Fund is an investment platform where money is collected from various investors to invest in a pool or portfolio of different stocks or assets. Investments made through mutual funds may be for short term, medium term or long term. Equity, debt and money-market instruments are the major classifications of asset classes.

Advantages of Mutual Fund:
• High Liquidity
Mutual fund has high liquidity as you can take your money back any time from the particular mutual fund investment.

• More Diversification
Fund manager spreads your investment across various companies and across various industries and sectors called diversification. In this way, when one asset class doesn’t perform, other sectors can still perform well. Hence, your investment at low risk.

• Expert Portfolio Management
Mutual fund is also good for those who does not have any investing and fund management skills. A fund manager takes cares of your portfolio and makes decisions on what to do with your investment. The expense ratio also includes the fees of the fund manager. As per SEBI, expense ratio cannot be more than 2.25% annualized of the daily net assets.

• Less cost for Bulk Transactions
It simply means if you buy multiple mutual fund units at a time, the processing fees, other commission charges will be lesser as compared to buying one mutual fund unit at a time.

• Flexibility to Invest with Smaller Amounts
In mutual fund, you can invest with smaller amount as well. No matter how much is your income, you can always invest some portion of it into mutual fund.

• Suitable for all Financial Goals
It is one the best thing about mutual fund that it always has some plan for everyone’s financial goals. It also includes SIP. Mutual fund has many schemes and plans so that you can choose which suits you best.

• Safe and Transparent
As pe SEBI regulations, customers have full transparency to their mutual fund investments. There are statutory government bodies like SEBI and AMFI who regulates the fund houses. You can easily verify the credentials of the fund houses and the asset manager.

Disadvantages of Mutual Fund:
• Fluctuated Returns
Mutual funds returns are not guaranteed due to the market conditions. You should always analyze the risk profile before investing in mutual funds.

• Cost
Some mutual funds have high cost included with them. The salary of the market analysts and fund manager, operational costs of the funds all these are included in mutual plan and scheme which means investors has to play for this. To overcome this, always check the proper details about mutual fund plans and choose accordingly.

• Low Liquidity on Some Mutual Fund Plans
Mutual funds are generally known for high liquidity but some mutual fund schemes or plans has low liquidity as well. It means you cannot exit some mutual fund plans before the specified time. Also, some charges extra cost to exit before the specified time.

Conclusion
Mutual fund has many advantages and very few disadvantages but these disadvantages can be overcome by choosing the right mutual fund scheme. Check and analyze mutual fund plan well before investing and choose accordingly that matches best to your financial goals.


Also Read: Different Type of Mutual Funds

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