Question

What are the general purposes of using mutual funds in individual investment portfolios?

Answer 1

Question : What are the general purposes of using mutual funds in individual investment portfolios?

Answer : Following are the gneral puroses of using mutual funds in individual investment portfolio :

1) Diversification : This is the main benefit. Mutual funds invest the money of the investors in manifolld stocks which belong to varied sectors and industries. This facilitates the loss of in one security with th profit of the other scurity. Diversitication reduces the probability of high losses and provides benefits of small but consistent profits.

2) Economies of Scale : As mutual funds take money from a very large number of investors, the cost per investor decreases substantialliy. The transaction charges, brokerage charges charge, management charges, softwre subscription charges and many other charge per investor reduces. So, both the investors as well as the mutual funds are benefitted from the cheaper coste. Mutual funds can negotiate for the costs they pay as they have large number of clients.

3) Professional Investment Services : Individual investors do not posses the reqiured knowledge to handle their investments on their own. Mutula finds hire professionals who are highly skilled to decide which securities should be purchased and which should be sold. This hepls manage the money of the investors professionally.

4) Liquidity : Investors can redeem the units of the funds whenever they want to. There maybe some penalty amount for withdrawing money but it will be very insignificant in value.