Mutual Funds Good or Bad: A Comparative Study

by Harry Shawn An Apt Solution for Online Presence

Planning an investment is a daunting task and it is really difficult to choose which way to spend your hard earned money so as to ensure a guaranteed return. Moreover, understanding and dealing with investments require a lot of skills and expertise and is not everyone’s cup of tea to be honest. In such cases, you are often given an option called “mutual funds” where the securities are professionally managed by a group of experts on your behalf.

The other day I was going through a number of articles on investments through mutual funds and also came across a frequently asked question – Mutual Funds are good or bad? Now, you can’t treat it that way as situation varies from person to person. It all depends on how well-planned you are and how you deal with the process.

Like any other investment vehicle, mutual funds too have their own share of merits and demerits but simply based on that you can’t judge them as good or bad. Before we proceed further, let’s have a quick look at some of the advantages and disadvantages (based on different opinions) related to mutual funds.

Advantages of Mutual Funds

Mutual funds are managed by skilled investment professionals who are market experts and have access to real-time market information.
Funds are invested in a wide range of securities which reduces the investment risk to a great extent even if the market value declines for a particular security.
Mutual funds allow you to invest in varied portfolio for an amount as low as Rs. 5000 or even less at times.
With just one investment, you get access to the benefits from varied investments and the fund managers are there to care of various aspects like where to invest your money and also ensuring that your dividends on investments are received.
Liquidity is also an advantage. In case of stocks and closed-end funds, you get access to your money (after selling the investment) after three four days but if you sell a mutual fund, you are getting the money the very next day.

Disadvantages of Mutual Funds

Diversification is definitely an advantage in mutual funds but losses can still occur even to the extent where you may lose your entire money (although such cases are very rare).
Mutual fund involves multiple trades at multiple prices which usually makes it complex.
Mutual funds charge management fees. Moreover multiple trades mean multiple commissions along with consultation fees.
Mutual funds are not considered tax friendly.
The managers are in charge of the trades, so it is often difficult for you to manage your portfolio as it is not under you control.
Chances of a guaranteed return are less (as many people say).
Mutual funds come with high sales charges.

Conclusion

Now, as we have studied both advantages and disadvantages of mutual funds, it’s time to think how to tactfully deal with it. We all know that mutual funds come with endless options and this is often counted among its disadvantages but if you want you can definitely leverage the benefits of these options. Say, mutual funds have hidden fees (that are often referred to as 12b – 1 fees) then you must also know that there are many mutual funds that do not charge this fee. So before you invest, choose your option carefully. Similarly, there are many mutual funds which do not have high sales charges. As I said earlier, like any other mode of investment, mutual funds also have certain disadvantages but it is more important to identify whether that disadvantage is related to mutual funds as a whole or a particular mutual fund option. Once you get to the root of the problem, it may become easier for you to reach a conclusion.

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