Pros and Cons of mutual funds.
There are many reasons before choose to invest in mutual fund in such a frequent manner. We divide into some of the major reasons most people prefer mutual funds.
Diversification in mutual funds help reduce portfolio risk. Choosing funds with different investment styles allows you to diversify beyond the type of investment.
It can be another way to reduce investment risk. It reduces the effect any single security or class of securities will have on the overall portfolio.
Reinvestment of Income
Dividends and other interest income sources are declared for the fund, mutual funds allow you to reinvest your dividends and interest in additional fund shares. To the advantage of the investor, there is opportunity to grow your portfolio without necessarily paying regular transaction fees for purchasing additional mutual fund shares.
Convenience and Affordability
Understanding the terms of mutual funds is one of the key factors that has led to the frequent patronizing of it.
Moreover, the pricing is also is relatively fair. Mutual funds are characterized with low minimum investments (some around $2,500). For as little as $50 per month, you can own shares in Google (NASDAQ: GOOG). They eliminate price fluctuation throughout the day and various arbitrage opportunities that day traders practice.
Another plus for mutual funds is the employment of experts to manage funds. Many investors are not equipped with the financial know-how to manage their own portfolio. Yet, dedicated professionals manage non indexed mutual funds to help investors receive the best risk-return trade-off according to their objectives.
Anytime you buy mutual funds, you pay certain amount which is used to hire a professional portfolio manager who buys and sells stocks.
One major pro of mutual funds is the benefits of diversification. However, there are danger of being over-diversified. Though risk will be reduced, so too will the potential for gains.
The more securities you hold, the less likely you are to feel their individual returns on your overall portfolio. This is because you will need too many securities to gain more fund in order for your gains to increase.
No Control Over Portfolio.
Hiring professionals to manage your securities could be a fairly good idea, however, the investor has no
control over his or her own portfolio. The management of the portfolio is in the care of mutual fund managers. Therefore, the progress or retrogress of the portfolio is in the hands of some people on which you have no control.
Like it or not, investors do not have a choice when it comes to capital gains payouts in mutual funds. Anytime you sell stock, you’re taxed when the fund distributes gains it made from selling individual holdings.
Re investments are also taxed which literally is more than once tax paid on a single share.
Poor Trade Execution
If you place your mutual fund trade anytime before the cut-off time for same-day NAV, you will receive the same closing price NAV for your buy or sell on the mutual fund.
For investors in need of faster execution times, maybe because of short investment horizons, day trading, or timing the market, mutual funds provide a weak execution strategy.
Some Mutual funds companies in India to Start with :
The following are mutual funds companies available in India for you to start with
- Aditya Birla Sun Life AMC Limited.
- Baroda Asset Management India Limited.
- BNP Paribas Asset Management
- BOI AXA Investment Managers Private Limited.
- Canara Robeco Asset Management Company Limited.
- DHFL Pramerica Asset Managers Private Limited.