Learning about mutual funds for beginners

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Mutual funds are basically a collection of stocks and bonds. As an investor you can buy the shares of the mutual fund and in that process you will also invest in the stocks and bonds that are parts of that mutual fund. Generally mutual funds are managed by the fund managers who take the decision regarding investment of the fund and selling of the stocks. It is the skill of the fund mangers that has a direct influence on the performance of the mutual fund.

Who should invest in the mutual funds – If you are not satisfied with the interest that your savings account is earning you can think of investing in the mutual funds. Mutual funds will definitely give you more return than the bank accounts but you can not expect to get as much return as you can expect from the stock market. But then mutual funds do not have that much of risk associated with it. Moreover, if you are do having that much of time and expertise to manage your stock market investment mutual funds are the best effective solution for investment. This is the reason that mutual fund have gained so much popularity among the investors. Here we are presenting a comparative discussion of the advantages and disadvantages of investing in the mutual funds

Advantages of investing in the mutual funds

Get help from the professional fund management – When you have invested in the mutual fund you are actually investing in the stock market in an indirect way. As a retail investor if you do not have the skill to manage stock market investment, you can still get benefited of the high appreciation of the stocks at the market through the mutual fund. It is not possible for the retail investor to employ fund managers of asset management companies to manage their stock market portfolio. But when you are investing in the mutual fund your fund will be managed by the mangers who are efficient and experienced to handle huge investments and hence you can benefit from the skill of the professional fund managers.

Diversified investment – Mutual funds have huge investment capacity and hence they diversify their portfolio by investing in hundred of stocks from different industries and sectors. This practice ensures that even if a sector or a certain stock falters at the stock market that loss can be made up with profit that is made from other stocks and sectors. So it is quite evident that when you are investing in mutual fund you are reducing the chance of making loss at the stock exchange.

Simplicity of mutual fund investment – investing in the mutual funds is lot easier than investing in the stock market. For investing in the stock market you need to tie up with a broker, open a DP account and then deposit comparatively bigger amount in the account to trade in stock market. Moreover, for successfully trading in the stock market, you have to keep close watch on the movement of the stock market. Whereas, investing the mutual fund is quite simple, you have to choose one mutual fund as per your requirement and pay for the number of units that you want buy and you are done.

Disadvantages of investing in the mutual funds

Beyond your control – Once you have invested in mutual fund, you do not have any control over your fund and it will be managed by the fund managers. The fate of your investment will depend on the skill of the fund managers.

Fund management Cost – The cost for managing a mutual fund is huge. Whether it is the salary of the fund managers or the cost of mailers that are sent to the investors – everything is added to the fund management cost. As an investor you too have to bear this cost that will definitely reduce your profit.

Dilution of the fund – Sometime when the fund has investment in so many stocks, it will hardly have any effect of good performance of one particular stock on the overall performance of the fund.

These are the pros and cons of investing in the mutual funds, now you have to decide if mutual fund is an appropriate way of investment for you or not. If you find that mutual fund is really suitable for you need to know about different types of mutual funds and then select one fund for making investment.

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