Essay: Advantages of mutual funds

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  • Subject area(s): Finance essays
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  • Published on: October 20, 2015
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  • Advantages of mutual funds
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i) Professional Investment management:
Mutual funds manage large pool of money. The managers have access to important market information and able to show trades on the large and most cost-effective way.
ii) Diversification:
Mutual funds invest in a broad range of securities.Though investment risk will be reduced by decline in the value of any one security. Mutual fund unit-holders will gain from diversification techniques.
iii) Low Cost
A mutual fund minimum amount requirement to participate is Rs.5,000/-, and sometimes even lesser amount. And there will be no sales charges to own them.
iv) Convenience and Flexibility
Investor enjoys a range of diversified portfolio and services services. Mutual fund also gives the service of a high quality custodian and registrar, to make the investor’s amenity remains the priority.
v) Personal Service
Unit holders can easily contact the specialist who provides all the information regarding the investment. These specialists helps in providing personal assistance regarding the information, buying and selling the fund, answering queries about investors account status.
vi) Liquidity
In open-ended schemes, investor can get back the money at NAV related prices from the mutual fund itself.
vii) Transparency
Investor get regular information on the value of investment, including the disclosure on the specific investments.
Disadvantages of mutual funds
1. Professional Management: Some funds doesn’t perform well in the market, As the management is not dynamic enough to explore the opportunity available in the market.
2. Costs: The biggest source of AMC income is from the entry and exit load, which they charge to investors at the time of purchase. The mutual fund industries charges extra cost under layers of technical grounds.
3. Dilution: Funds have small holdings across different companies, only few investments give high returns, this don’t make much difference on the overall return. Dilution is the result of a successful fund getting too big, manager finds it difficult to get good investment.
4.Taxes: Fund managers does not consider investors personal tax. For instance, when securities is sold by fund manager, a capital-gain tax is shuffled, which affects the profitability of the individual in the sale..

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