Mutual funds advantages and disadvantages

The mutual funds represent a collective form of investment. The investors put their money all together in a fund from which are bought stocks, bonds or other short-term financial instruments.

The mutual funds are managed as a corporation, with a board of directors supervising the whole activity. The fund manager is the person that decides the financial instruments that are bought or sold in order to fulfill the fund’s objectives and policies.

In the context of recent economic crisis more investors turn their attention over the mutual funds. The mutual funds have several advantages that make them the better choice for any investor. Among the main advantages that mutual funds have we find:

- diversified portfolio: with so much money collected from many investors the portfolio can be very diversified this way reducing the risk of big losses generated by the fall of one stock. Basically many investors share a small part from many stocks, bonds or other financial instruments.
- professional management: the fund management and administration are both conducted by professionals who know very well the market and work for the interest of the investors.
- unlimited access to financial instruments: these are some financial instruments available only for large investors so individuals cannot trade them.
- high liquidity: the individual trader is limited to its own available capital, but the mutual fund has always a higher liquidity ready to cover new investments.

The mutual funds also have disadvantages. These are:

- limited control over your investments portfolio: the fund manager decides what financial instruments to be bought or sold.
- fees: there are administrative fees to be paid.
- unpredictable income: like many other financial investments, the annual income rate is unpredictable, but mutual funds are long term investments and in long term all are profitable.

As stated before the number of mutual funds investors is increasing each day and is expected to continue to grow as the number of individuals interested in long term investments is also on the rise.