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Advantages and Disadvantages of Mutual Funds

Advantages and Disadvantages of Mutual Funds are as follows, So let us check it out one by one.

Advantages:

The following are the advantages of mutual funds:

1. Easy to Invest

Mutual Fund investment is easy, simple and convenient.It is easy to buy and redeem shares in mutual funds.

2. Managed Professionally

Mutual funds uses professional manager to make various decisions regarding the companies to invest on. The portfolio of stocks/bonds is managed by assigned experts.

3. Offers Diversification

Mutual funds offers diversification, it can be invested in assets, bonds, cash or commodities.Diversification of mutual funds reduces risk of one particular stock or sector.

4. Administered Conveniently

Mutual funds are administered conveniently, investing in it reduces paper work and also avoids problems such as bad deliveries, delayed payments etc.,

5. Gives higher returns

Investing in top mutual funds gives excellent returns and an additional source of earning, It is also one of the effective way of saving tax.

6. Low cost management

Investment in mutual funds is simple and easy to check portfolio, it is a low cost management of entire portfolio.

7. Offers Liquidity

Liquidity offered by mutual funds is good for us when we may come across emergiencies which warrant sudden requirement of cash.

8. Provides Transparency

Transparency in purchase and sale of mutual funds are declared on daily basis, Investors can view the portfolio of their funds any time.

9. Highly regulated

Mutual funds must comply with a strict set of rules and are more extensively regulated and monitored by the securities and exchange commission (SEC).

10. Risk Management

Mutual funds is as investment vehicle it allows you to invest on wide protfolion such as equity, debt, real estate and gold. It reduces risk by focusing on wide range.

11. Automated Payment

Investors are allowed to carry out transaction online, Automated payment make the sytem easy and convenient.

12 Access to Information

The system if transparent and access to information is possible, Investors can check complete details of their portfolio online.

13 Range of Schemes

Mutual funds offers wide range of schemes, Investors can invest in eqity or commodity.

14 Tax Benefits

Get tax free dividends from equity mutual funds , equity funds offers you tax benefits.

15 Wealth Creation

If you sell equity mutual funds after a year, the returns will qualify for the long term capital gains.

Disadvantages:

The following are the disadvantages of mutual funds:

1. Mutual funds are subject to market risk

Read the offer document carefully before investing in any mutual funds, there is no 100% guarantee that you will get profit every time.

2. No Guarantee of returns

There is no guarantee of returs, one should invest on top mutual funds to reduce risk.

3. Diversification of portfolio does not maximize returns

Diversification of portfolio may reduce risk but it does not maximize returns. 

4. Costs to manage mutual funds

Sometimes cost to manage mutual funds increases, if they are invested for a longer duration.

5 Dilution

Due to dilution the stockholder's ownership percentage of that company may decrease.

6. Lock in periods

The lock in period of mutual funds can be 3 years, one cannot invest on other stocks due to lack of funds.