What could be the disadvantages and advantages of capitalizing in mutual funds? This is one question, which is often asked and looked upon since there are a lot of advantages of mutual funds as are the risks of mutual funds investment. Let us look at both of them here in details.
Mutual Fund Benefits
Mutual fund is popular among the investors. Here let us discuss about the benefits of best mutual funds in India or rather the advantages of mutual funds
- Diversification
Diversification is necessary. Not just in investments, but in any field of life. In mutual funds, diversification helps eliminate major risks of mutual funds investment since it involves the mixing of different kinds of investments including stocks, bonds, and other investment opportunities.
- Economies of Sale
The transaction cost of investors is reduced in mutual funds. It is similar to how you get bulk products. the more you buy, the cheaper it gets.
Mutual fund benefits thus prove to have an edge over other investment options.
- Divisibility
Many investors do not have the kind of money to invest in high profiles, securities or portfolios. One of the advantages of mutual funds is also to divide the cost of the entire portfolio among people to give them the benefit of investment straight away. This also provides an additional advantage – liquidity.
- Liquidity
One of the other benefits of mutual funds in India is the ability to be at ease in terms of getting in and out. Generally, an investor is able to sell the mutual funds at a shorter time period based on the current market trends.
This is one of the major mutual fund benefits. Among all the advantages of mutual funds, this one tops the lists. However, to avoid any risks of mutual funds, an investor must always check if there is any back-end load fee involved with such a transaction.
- Flexibility
Mutual funds are flexible. You can either invest in one fund or invest in a variety of funds. Stocks, bonds, short-term savings, 401 (k) plans, automatic deposit, systematic withdrawal, long-term savings, dividends, and limitless investment strategies.
One of the main mutual fund benefits is that it gives you a wide variety of range or options to chose to invest from. Hence, it is good for both beginners as well as advanced investors who have a lot of knowledge in investing in various portfolios. For beginners, they may decide to invest in any one investment option to know how mutual funds work before advancing further.
- Professional Management
When you invest in mutual funds, you invest in your portfolio management too. That is, in mutual funds, you get your personal and professional money manager who invests, buys and sells on your behalf. The money manager takes care of your portfolio as his/her own.
This gives you some space from your schedule. While the money manager researches the market and invests on your behalf you can stay rest assured that your money is in good hands.
However, it is a good idea to know more about your portfolio manager before handing over the entire money or investment details to him or her. This is one of the major risks of mutual funds investment.
Disadvantages of Mutual Funds
- Costs
Mutual funds always carry costs. These costs decrease your overall rate of return.This is one of the major disadvantages of mutual funds.
- Impersonal Connection
When you invest in mutual funds, you almost lose control of your money. The portfolio manager invests on your behalf while making his or her own decisions. There are quarterly calls which may help you know your investment profile but it is limited to just that. This is yet another disadvantages of mutual funds that you lose interpersonal communication. It acts as a risk of mutual funds in many cases, where due to lack of communication, investment expectations turn upside down.
- No Intra-Day Trading
The NAV (Net Asset Value) price is settled each day, at the end of the trading day. Before the end of stock market close, if you do not lock in your trade, you will receive NAV as the close of business the following day.
Due to this, you cannot capitalize on sudden movements in the market.
Here we discussed about what are the advantages and disadvantages of investing in mutual funds? While mutual fund benefits are really promising in the investment scenario as compared to other investment options, if the risks of mutual funds are not handled properly and on time, the befits of mutual funds in India may turn into disadvantages of mutual funds.
This should be taken care of with utmost importance.
