Advantages of Mutual Funds
� Professional Management�- The primary advantage of funds is not having to pick stocks and manage investments. Instead, a professional investment manager takes care of all of this using careful research and skillful trading. Investors purchase funds because they often do not have the time or the expertise to manage their own portfolios, or they don�t have access to the same kind of information that a professional fund has. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.
� Diversification�- By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out across many different holdings. The idea behind diversification is not to put all of your eggs in one basket � instead, spread investments across a large number of diverse assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can seriously hurt your finances. Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be practical for an investor to build this kind of a portfolio with a small amount of money.
� Economies of Scale -�Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions. Moreover, a mutual fund, since it pools money from many smaller investors can invest in certain assets or take larger positions than a smaller investor could. For example, the fund may have access to IPO placements or certain structured products only available to the institutional investor.
� Simplicity�- Buying a mutual fund is fairly straightforward. Many banks or brokerage firms have their own line of in-house mutual funds, and the minimum investment is often small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a monthly basis. Brokers can also purchase any other listed mutual fund on behalf of clients.
� Variety�- Mutual funds today exist with any number of various asset classes or strategies. This allows investors to gain exposure to not only stocks and bonds but also commodities, foreign assets, and real estate through specialized mutual funds. Some mutual funds are even structured to profit from a falling market Mutual funds provide opportunities for foreign and domestic investment that may not otherwise be directly accessible to ordinary investors.
� Transparency�- Mutual funds are subject to industry regulation that ensures accountability and fairness to investors.
The author is�an MBA (Finance) professional & has indepth knowledge in M.Fund. He can also be reached at anildoshi2005@yahoo.co.in
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