ADVANTAGES OF MUTUAL FUNDS

1. Professional Management When you buy a mutual fund, you are also choosing a professional money manager. This manager will use the money that you invest to buy and sell stocks that he or she has carefully researched. Therefore, rather than having to thoroughly research every investment before you decide to buy or sell, you have a mutual fund's money manager to handle it for you.
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2. Liquidity Another advantage of mutual funds is the ability to get in and out with relative ease. In general, you are able to sell your mutual funds in a short period of time without there being much difference between the sale price and the most current market value. However, it is important to watch out for any fees associated with selling, including back-end load fees.
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3. Diversification One rule of investing, for both large and small investors, is asset diversification. Diversification involves the mixing of investments within a portfolio and is used to manage risk. For example, by choosing to buy stocks in the retail sector and offsetting them with stocks in the industrial sector, you can reduce the impact of the performance of any one security on your entire portfolio.
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4. Divisibility Many investors don't have the exact sums of money to buy round lots of securities. Smaller denominations of mutual funds provide mutual fund investors the ability to make periodic investments through monthly purchase plans while taking advantage of rupee-cost averaging. So, rather than having to wait until you have enough money to buy higher-cost investments, you can get in right away with mutual funds.
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5. Flexibility. The investments pertaining to the Mutual Fund offers the public a lot of flexibility by means of dividend reinvestment, systematic investment plans and systematic withdrawal plans.

6. Potential of return The Fund Managers of the Mutual Funds gather data from leading economists and financial analysts. So they are in a better position to analyze the scopes of lucrative return from the investments.

7. Regulated for investor protection The Mutual Funds sector is regulated by the Securities Exchange Board of India (SEBI) to safeguard the rights of the investor.

DISADVANTAGES OF MUTUAL FUNDS

1. No Guaranteed Returns Returns from mutual fund investments are not guaranteed though they are managed by professionals. Some of the mutual funds dont beat their benchmarks.

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2. No Control Over Decisions We dont have any control over the investment decisions. The manager takes all decisions on securities buying and selling.

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3. Inefficiency of Cash Reserves Mutual funds maintain huge cash reserves to meet redemptions at same time. These cash reserves could be a combination of cash in bank, cash equivalent highly liquid money market instruments. So some part of the money is inefficient which could have been invested to get more returns.

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4. Management Fees Some part of our investment (usually 1% to 2% annually) goes towards the management fees. Apart from this there are sales commissions and redemption fees.

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5. Dilution Even though diversification reduces investment risk it dilutes returns. A mutual fund is a portfolio of number of assets. So the returns of a fund are the average return of securities in the portfolio.

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THANKS

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