How Mutual Funds Work? Benefits and disadvantages to Investors
Those who wants to invest in stock market, but dont have the required time and competancy choose the Mutual funds.
Mutual Funds are the funds where money from different subscribers is pooled and invested in Stock Market, Bond Market etc.
The benefits to investors are:
- Experianced Manageres run the Mutual Fund Units
- Mutual Funds are regulated by SEBI and have to comply with many strict rules and regulations
- For small investors its difficult to invest in big stocks, Mutual Funds invest in big stocks by pooling the money
- Tax benefits are available, Same rules which are applicable to Shares
- Mutual Funds invests in different shares, the benefits of diversified portfolio is passed to unit holders.
- Unit Holders dont have to utilise time to decide and track the different shares.
Apart from above benefits, many other benefits are passed to unit holders.
The major Disadvantages of investing in Mutual Funds are:
- In some Mutual funds schemes Exit is not easy
- Entry and Exit loads
- Reliability of Funds Managers sometime
- Unit holders can not decide the shares in which Mutual Funds should invest
- Management Fees is sometime too high
The studies shows that most of the time retail investors loose their money. This could be due to wrong timing of Investment or lack of research on the funds.
Investors should carefully research the funds they have choosed to invest. Investors should study the pattern of flactuation in Fund market value and the shares in which Fund have invested.
Mutual funds are really good option for those who dont have sufficient time to explore the trends of market.
Agree that high loading price and manager fees are a disadvantage of MF's. But still these remains the single gateway to equity markets for those who want someone else to manage the investments.
MF's gives less returns compared to direct investments in shares. But the big benefit of investing in MF is Diversification of portfolio.
Diversification can reduce the risk to a great extent and diversification is bit difficult for small investors if they directly invest in market.
Managers of mututal funds are well informed and qualified to manage the funds. Again its out of budget for small investors to have their own investment consultant.