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General Blog

Pros and Cons of investing in mutual funds

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A mutual fund is the type of investment where there are some goods and bads in it. Most of the pros and cons of the mutual investment are given bellow and investor should have a check on it before taking a decision for the investment in mutual fund.

Pros of Mutual fund investment

  1.    Diversification: This is the main and the most significant advantage of mutual fund investment that the investment in mutual fund is made into different diversified companies. The people who manage the mutual fund investment company are professional and regularly study the market trends and invest a number of the hundreds of investors into different viable options. Management always makes a portfolio of the investment options and put the money into a different organization to diversify the risk of investment into one organization or the same industry; it helps the company to mitigate the risk of loss of investing the whole amount into the same organization or same industry.
  2.    Managed by experts: Many individual investors do not have any knowledge of the market but have the ability to take a risk to make the profit, mutual funds are managed by the professionals who have in-depth knowledge of the market and its fluctuations.
  3.    Liquidity: Unlike other investment options available in the market, the mutual fund is the type of investment which can convert their investment into hard cash in a real time. Other investment options may lock your money for a longer time, and you may not be able to utilize your money when you need it, but the mutual fund is the investment which can be converted into the liquid asset easily.
  4.    Convenience: In the initial days of the investment, the people who do not have enough knowledge of the market and do not know how to trade into security market, can be caused by the losses and mismanagement of the stocks. With the mutual fund, people can conveniently trade in the market without any hurdle through professional investment service providers.
  5.    Reinvest of investment: This another important benefit of investing in a mutual fund, the investor can quickly reinvest the dividend received on the investment and can earn the profit on the dividend also.
  6.    More investment options: There are different types of investment options available in the market with the mutual fund for everyone though the investor is the beginner, intermediate or the experts.
  7.    Affordable for all: This is one of the best characteristics of mutual fund that every person whether big, small or smaller, has the options and chance to invest in the mutual fund regarding SIP by paying a small amount on a monthly basis.

Cons of Mutual Fund

Though, there are many advantages of investing in a mutual fund, on the same time their many disadvantages of the mutual fund investment as given bellow.

  1.    No portfolio control: Though the money invested belongs to, but you do not have any control on the investment portfolio and all the trading activities are control by the investment managers.
  2.   Overhead expenses: The professional mutual investment company higher employees and manage all their stocks without disturbing you but they charge a good percentage of profit from the investors, and there are different other charges imposed by the investment company, which can be avoided by handling all the investment activities by themselves.
  3. Unwanted diversification: Though Diversification is the key to investment, but sometimes when the money is the investment in more number of organizations, the individual return of the investment is less.
  4.  Maintain Liquidity: The Mutual Fund is the investment in which investor can demand their money at any point of time as per their financial needs and requirement. Mutual fund investment companies are always required to maintain the liquidity to meet the sudden demand for the money by disinvestment of the mutual fund.  Therefore it is always better to invest in top mutual funds for better profits.