Advantages and Disadvantages of Mutual Funds

Advantages and Disadvantages of Mutual Funds
Mutual fund is most reliable than stock market. If you have not knowledge of stock market then you will go throgh with mutual fund. Here you will choose any one mutual fund as you like and invest some amount. But just as there are pros and cons everywhere, mutual funds also have advantages and disadvantages. Before investing in a mutual fund, let us know Advantages and Disadvantages of Mutual Funds.

Advantages of Mutual Funds

It is clear that Mutual Fund gives relatively lower return than Stock, then why someone should go for Mutual Fund? The answer is very simple. If you invest in stock, you have to analyze the volatility, risk involvement, worthiness of the stock and decide your investment. You have to manage your fund. For becoming a good fund analyzer or fund manager you need considerable knowledge and experience. Risk is higher if you are not competent enough in taking investment decision.
On the other side by buying a mutual fund, you are assigning a professional fund manager to manage your fund, who is better than you in terms of fund management and investment decision making skill. Thus your risk for losing money is reduced and you needn't to run with Sensex or Nifty and various financial indexes and ratios. You are paying some charge to the fund manager for this.

Due to lower risk and relatively good return Mutual Funds are popular among Investors.

Mutual funds are supported by following advantages

Management by Professionals

You avail of the services of experienced and skilled professionals who are backed by a dedicated investment research team who analyzes the performance and prospects of companies. With analyzed data given from research professionals they select suitable fund to meet investment objectives. For doing all these research you may need full dedication on this subject, financial knowledge and enormous time with experience. This is the biggest advantage with Mutual Fund w.r.t other investment ideas.

Diversification of Investment.

Mutual Fund managers invest in a number of companies across a broad cross section of industries and sectors. This diversification reduces the risk because very rarely do all stocks decline at the same time and in the same proportion.

For you doing all these needs experience, knowledge & dedication. You achieve this diversification through a Mutual Fund company with far less money than you can do on your own.

Easier Administration

Investing in a mutual fund helps to avoid many problems like late payment, bad delivery, unnecessary follow up of brokers and companies as well as reduces paperwork. Mutual Funds save your time and make investing easy, convenient & enjoyable. The amount they charge for this is far less than the result you get.

Higher return potential

In the medium to long-term, investing in a variety of selected securities has the potential to give mutual funds higher returns. The return is higher than other investment but normally lower than return in stocks.

Low overall Costs

Mutual funds are a relatively low cost method compared to direct investments in the capital market as the benefits of brokerage, custodial and other charges translate to a lower rate.

Liquidity flexibility

At any time you can buy or sell the mutual fund through your bank or Mutual Fund Company.

Well Regulated

Mutual funds are registered with SEBI and are monitored by the Securities and Exchange Board of India (SEBI). SEBI acts in accordance with strict rules and regulations to protect the interests of investors. In other countries also they are registered with respective regulatory act.

Disadvantages of Mutual Fund

Like other investments Mutual Funds also suffer some disadvantages. Some major criteria’s affecting investment in Mutual Fund is given below,


This is a major disadvantage that ruins your income. Running a Mutual Fund organization is off course an expensive task. All expenses from Fund managers salary to Investors transaction statements is charged from investor’s income indirectly. Fee structures vary from fund to fund. You should give vigilant attention to the fee structure to avoid negative consequences at a later stage.

Professionalism in Fund Manager

The fund manager may be less capable than you. No one is more worried about your money than yourself. Capability of the Fund manager/Mutual Fund Company can be accessed from their past records. Carefully understand the Mutual Fund companies past records and the consistency of the positive or negative returns.


Everywhere taxes are imposed. You have to pay taxes for your incomes unless the investment is recognized as tax benefit investment under govt. rules. Selecting a proper plan taking care to tax benefit rules can minimize the taxes.

Lower return

Return is lower than stocks. Because of the fees charged by your mutual fund company for doing all analysis on behalf of you. Irrespective all these disadvantages Mutual Funds always take considerable part in good investors' portfolio due to lower risk and good return.

Who can invest in Mutual Fund

Do you have few hundreds of rupees? Yes! Then you can invest in Mutual Fund. Anybody having few hundreds of rupees can invest in Mutual Fund. You as an investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy.

What are Fees & Taxes attracted in Mutual Fund

Understanding various fees attracted in Mutual Fund is very important. Most of the people don't know what are the fees killing their income. Unless you know this it is difficult to be successful Mutual Fund investor.

Your broker can give you clear picture in fees & taxes applicable, since it varies Fund manager to Fund manager. Read their terms & conditions carefully, ask them about fee structures, ask all the doubts you have and be clear.