Peter Gitundu Creates Interesting And Thought Provoking Content On Mutual Funds. Read More Of His Articles Here DISADVANTAGES OF MUTUAL FUNDS
It is true that whenever an investor is investing his money in any given type of investment security, he is looking forward to enjoying some benefits form the same. While there are many advantages in the investment world, the disadvantages are there as well. Let us specifically have a look at the advantages and the disadvantages of mutual funds. One of the most enjoyable benefits that come with these securities is the simplicity of buying and managing the funds.
It is easy to just walk into any bank and buy mutual funds at very reasonable prices. The minimum initial investment is also very small and affordable. Simplicity also comes in the management of the securities. The funds are managed by managers who do everything in a professional manner on behalf of the investors. Mutual funds are also very easy to liquidate. If you want your cash, you just walk into your managers office and you get your cash.
As compared to other investments, mutual funds enjoy economies of scale. Since they trade in large amounts of securities, transaction costs become relatively lower than when transactions are based on single securities. Among the disadvantages that may accrue from investing in mutual funds are the high risks and costs. An investor may choose not to invest in the large amounts of securities and if they invest in the single securities, they do not enjoy the economies of scale mentioned above.
Changing market conditions may also lead to a fluctuation in the commissions and fees. Other draw backs that one should be prepared for are lack of guarantee. The value may fall without prior warning and become even less that the initial principal amount.
Returns on your investments largely depend on your managers skills and professionalism. Since you hand over the management of your investment to another person, you are not assured that you will get the returns you hope to gain. You must therefore be able to perform a review of a managers performance before entrusting them with your money.
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