Question

Comparison of benefits and reasons for investing in funds; explanation of the associated risks and scrutiny of investment companies’ products. (around 300-400 words) Please without plagiarism thank you :)

Answer 1

Mutual Funds are common form of investment in the contemporary world which offers with attractive rates of Return with no charges in high professional management.

There are various advantages associated with investment in mutual fund .They are as follows-

1. Professional management of funds- Mutual Funds are managed by professionals who are experts from their respective fields and they have wide area of knowledge as well as experience into operating into this industry. They often beat the market rate of return so offers an attractive form of investment.

2. Liquidity- investment into Mutual Funds are highly liquid because some of them are tradable while some of them can be redeemed at the end of the day so one can put in the money as and when he wants and take out the money as and when required hence it can be said that mutual funds highly liquid in nature.

3. Diversification-Mutual Funds offers with asset allocation in two different securities which carries different level of risk. The risks are well mitigated through allocation into different securities. They are well diversified as investment into Funds eliminates the firm specific risk by investment into a wide gambit of stocks.

4. Investment into smaller proportions- Mutual funds provide for investment into smaller units. Small retailer can also buy a number of mutual fund units as per his risk appetite.

5. Cost efficiency- investment into mutual funds is cost efficient as they charge very low amount of maintenance as well as exit loads so even after deducting for the charges the rate of return on investment is significantly higher to tilt in favour of making investment into mutual funds.

6. Safety- there is a high level of disclosure requirements associated with investment in mutual funds so it provides with high level of safety so that investor can have a healthy sleep.

7. Automatic process-investment in mutual fund is highly automated and one can transact easily as an when required these are highly transparent processes which are done in fraction of seconds and there is no need for any physical interaction with fund managers or other intermediaries.

Investment in mutual funds is done for future planning and need for money in future. They can provide with a lump sum amount of money for some specific purpose at specific juncture of your life in future.

there are risk related to investment in mutual funds as well which could relates to tax insufficiency, abuse of authority by mutual fund managers,investment into highly risky assets which can blow off significant chunk of Net Asset Value ,high credit risk.

Defaults by mutual funds are rare but when credit Tightena and there is adverse economic scenarios as it can be seen in the current environment, there are funds which defaults as we can take the example of Franklin Templeton fund in India closed six of its debt funds due to liquidity squeeze and credit risk.

Investment in mutual fund should only be made after proper knowledge and investigation of risks and knowledge of the underlying assets they are exposed into.