To understand the benefits of investing in Mutual Funds, we must understand that why mutual funds have been designed? Mutual fund is a vehicle of investing in capital market and capital market gives better returns than that of the traditional investment options. Everyone wants better return on their hard earned money but each one of them do not have the understanding about capital market and many of them do not have enough time to track the market and their portfolio So experts of the financial market have recognized this problem of potential investors and form trust, fund managers of the trust manages the portfolios.
Here are the benefits of investing in Mutual Fund:
Fund Managed by Professional Managers:
Your hard earned money is managed by expert financial professionals. These professionals have the work experience of more than 10 years in the market.
Fund managers invest the corpus in different sectors and different securities. They do not put all the eggs in only one basket. Market is volatile in nature. So they choose the sectors and companies which are negatively co-related to each other so that the effect of volatility of the market gets nullify.
Flexibility of Investment:
There are many types of Mutual Funds available in the Market; some of them are mentioned above in the article. So you have a wide range of Mutual Fund Schemes to invest.
It is a digital age, you can see everything online. Fund managers provide each piece of information about your portfolio online to you in a timely manner. They provide you Factsheets, annual report, offer documents, NAV report etc.
Well Organized Fund:
Mutual Funds in India are well organized funds. They are being regulated and monitored by SEBI (Securities and Exchange Board of India). Each fund house is registered with SEBI, so if you have any obligation with the trust you can approach the officials in SEBI for your grievance handling.
What are the Disadvantages of Mutual Funds?
Each coin has two sides, so as mutual funds. One side mutual funds have many benefits at the same time on the other side it has some limitations as well. Let’s see some disadvantages of Mutual Funds:
- The return basically depends on the skill of fund managers. But research shows fund managers perform well, they take the appropriate action according to the market nerve track the fund, churn the portfolio whenever needed.
- There are certain fee involved that may known as a hidden cost of the fund like administration cost, Service charge, etc. such fees can reduce your actual return on investment.
- If you withdraw your money before the maturity date, it can significantly affect your return due to some hidden costs involved.
- Mutual funds are regulated and monitored by Govt. body but it does not take any responsibility if any loss occurs.
- To reduce the risk, fund managers diversify your portfolio, but sometimes it has other way round effect. For example in the portfolio if any one of the securities gets double in value then your whole portfolio will not get double in value because that security is just a proportion of the portfolio.
- Although fund managers do their best and out performs the market but still it is a subject to market risk.
- Sometimes your return may affect due to the decision of other investors. Generally it happens when the market is highly volatile and other investors get panic and withdraw their fund. In such situation your return can also affect. See you must understand, market does not remain the same. If it goes down it corrects itself to the other side as well, so many experts advice to go for a long-term investment.
- Now days there are too many options of Mutual Funds available in the market, so you may get confused which one is good for you.
- When you invest in mutual fund, every decision is taken by fund managers. So, you cannot interfere in it, because in this pool of fund you are not the only investor and manager cannot go according to each investor.
The operation and administration, risk involved in the Mutual Funds have been covered in the second part of the article.