Finance

Advantages And Disadvantages Of Mutual Fund

Advantages And Disadvantages Of Mutual Fund

Every investor should include mutual fund investment as a means to reap market growth.

Before planning the investment portfolio, it will be helpful for the investor to understand the advantages and disadvantages of the mutual fund.

Advantages And Disadvantages Of Mutual Fund

 

Advantages

  1. Scope of liquidity – Unlike other investment, it is comparatively easier to liquidate mutual funds. However, if you have bought close-ended ones it will not be possible. To be on the safe side while buying mutual funds avoid ones with a pre-exit penalty. Stay alert of market trend and sell at the optimum price.
  2. Reasonable pricing – Mutual funds are easy to buy. You can buy them through an online brokerage. Mutual fund investment can be made through SIP which allows the investor to make small amount f systematic investment. Such investment is perfect if the investor does not wish to invest a huge sum of money all at once.
  3. Portfolio diversification – This is a unique benefit available with mutual funds. The option of portfolio diversification allows the investor to minimize loss and maximize gains. An experienced fund manager can help you assess your risk status and help you invest in a wide range of equities.
  4. Fund manager – One of the most popular reasons among investors for choosing mutual funds is that they can take the help of a fund manager. Most investors do not have the time to actively follow their investment. A fund manager eases the task and the investment is made on behalf of the investor. The fund manager plays a crucial role in building your assets so wisely choose the manager.
  5. Target – A practice among mutual fund investor is to have a goal for which they make mutual fund investment. Such targets help determine investment horizon, selection of the appropriate type of mutual funds and investment amount for meeting the goal.
  6. Reinvestment of return – Mutual funds lets the investor reinvest the interest or dividends received by the investor. It creates further scope for the creation of greater wealth.

Disadvantages

  1. Fees of a mutual fund manager – There are many fund managers who charge an exorbitant amount. These fees are not indicative of the gains you can make. Opting for a cost-effective reasonably priced brokerage will save unnecessary expenditure.
  2. Tenure – An investor may not be in a position to lock in their money for the long term. A mutual fund investment on average stretches from 5 to 8 years. Investors looking for short-term investment can choose ELSS to avoid long duration lock-in period.
  3. Over-diversification – Many fund managers believe in keeping the investment as diverse as possible. However, if the diversification is too spread out, the investor might not make maximum profit.

To make mutual fund investment, a is required. It can be opened with a reliable brokerage such as Kotak Securities.

An investor can make a fortune through mutual fund investment. However, mutual fund investment is not free from disadvantages as discussed above. It is up to the investor to weigh the pros and cons and make the right investment choices.

About the author

John Paul

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