Few Risks and Benefits of Investing in Mutual Funds
Mutual fund or MF investments are collective in nature. They pool funds from various sources and utilize expert investment knowledge to gain lucrative returns for the investors. Such schemes are managed by fund managers who have knowledge and experience of investing.
Mutual funds are preferred investment vehicles for several investors as they hedge investment risk as well as promise better returns. Despite all the benefits, there exist several risks which you should scrutinize before purchasing units of any scheme. Here are the detailed benefits and risks which will provide you clearer picture about investments in mutual funds.
1> Professionally Managed
All MF schemes are professionally managed by fund managers who have years of experience in picking securities that offer lucrative returns. Moreover, large research teams are involved to collect and process data in order to make better investment decisions. This is impossible at personal level.
2> Better Diversity
Fund managers have the liberty of choosing different securities as they have huge pool of money. This is impossible at an individual level because you will be unable to maintain huge corpus of funds with yourself.
Stocks of certain companies are priced very high. Even though they offer better elasticity, you will still find their margin requirement considerable. While with mutual funds, no such inconvenience arises as fund managers have large pool of money to pick any stock, without having to worry about margin limits.
1> Lack of Control
Unlike individual securities, you do not have any control over MFs portfolio. Fund manager decides where to invest and how much to invest. The only control you have is picking schemes which consist of stocks of your choice.
2> Returns are not assured
As mutual funds primarily invest in equities and debt instruments, your investment is always exposed to market and credit risk. Thus, no scheme promises fixed returns. Furthermore, the fluctuating prices of underlying securities also change the NAV values which make projecting returns difficult for ordinary people.
3> Processing Fees
Mutual funds have entry and exit loads, which affect the returns you receive on the investments. Moreover, some chunk of your investment is also lost to processing fees and other operational charges.