Question

what is the advantage and disadvantage of the mutual funds??

Please explain them in detail. Thank you.

Answer 1

Mutual funds refer to investment in a fund that's the sum total of amounts collected from different investors in the fund.The fund will then be invested in a portfolio which will be the collection of bonds, stocks,and other assets.The mutual fund will be managed by fund managers.The price of the mutual fund will be indicated by its net asset value(NAV) per share.The following are the advantages and disadvantages of mutual funds.Advantages.Diversification:Diversification refers to the investment in different assets so that the risk of collection of investments(portfolio) can be effectively reduced.Mutual funds will have investments in different assets of varying risks and thereby is less riskier than stocks.Professional Management: Mutual funds are managed by a fund manager who will be well qualified and has a great deal of experience managing funds.Convenience :Investments in mutual funds can be made easily and the investor doesn't have to invest as much time as it would be required for research in case of stocks.Re investment:Mutual funds allow the investor to reinvest the dividend income provided by the fund.Low entry fee:Mutual funds have a low entry fee the minimum transaction amount is low making it easily accessible for investors with different budgets.The disadvantages are Fees :Mutual funds often charge an entry fee on top of the annual maintenance charge.The expenses will be expressed as a percentage of the holding.Potential for abuse by manager:the fund is managed by the portfolio manager.The investor does not have control over the portfolio.This opens up chances for abuse by the manager.Taxes on capital gains.The investor will not have much control over the tax charged on the gains made by the fund as the taxes are charged as the dividend is distribution.Excessive diversification.If the fund manager engages in excessive diversification the investors may suffer in terms of returns(lower gains).