mutual funds advantages and disadvantages

Mutual fund are investment through which different investor put their money to an investment company with the main aim of growing the money. There are different types of mutual funds, these includes stocks, bonds, money market among others. Over time, mutual funds have attracted lots of people though they have been noted to be characterized of the following advantages and disavantages

Advantages

Liquidity

Liquidity refers the ability to cover your assets to case in an easy manner. In most instances, this conversion is usually length and involves complicated procedure but with mutual funds, you enjoy a high level of convenience. Mutual funds are always high in demand making them easy to dispose. The purchasing procedure is also relatively easy.

Diversification

Mutual funds usually result in a diversified portfolio. Diverse portfolio reduces the risk of investing and it is one of the most consider elements among investors. Every mutual fund manager always aim to be successful leading to them investing in different portfolio which have been diversified by a large margin and have the highest probability of earning substantial return.

Ease of comparison

It is very easy to compare mutual fund since there are always material and regular updates concerning how mutual funds are performing. This is the main purpose mutual fund dealers allow investor to specifically compare funds by basing them on price, level of risk and price. The ability to compare enables us to make informed and best decisions.

Disadvantages

Fee

Mutual funds are usually characterized by large some of hidden fee which in most instances the investors are not aware of. It is worthy to note that fees, which are charged, are usually dependent on the type of mutual fund, which has been purchased. In instance where the fund is more aggressive and riskier, the management fee will be higher. The investor should also be informed of taxes and transaction fees.

Cost

One of the most significant disadvantages is that mutual funds are usually associated with a high cost in relation to the overall return that they bring. This is so since investors not only charge a specific price for the named fund but he/she will have to cater for any additional fee. There is also a specific fee which is paid to the fund manager.

Unpredictability

It is usually very hard to predict the performance of a fund with 100% surety. The performance of mutual fund is based on lots of factors and some of these factors are very hard to control. It is though important to note that some funds are associated with high degree of risk than others.

Index does better

At times, stock index usually outperform mutual fund though this is not always the case.it is always appropriate to carry out a good research before investing in specific types of mutual funds.