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Advantages and Disadvantages of Mutual Funds

by Manish Chauhan · 5 comments

Before investing in mutual funds an investor should understand if it suits his requirement of not . Therefore one should go through all the advantages and disadvantages of mutual funds .

Advantage and disadvantage of Mutual funds in India

Advantages of Mutual Funds

Management: One of the biggest advantage is that in very low cost the investor gets his investment managed by experts. If they want to get the services solely for their investment , it can be very expensive but by investing in MF they can take advantage of the scale.

Scale Advantage : The transaction costs of a single indivisual is very less because mutual funds buy and sell in big volumes.

Diversification : With mutual fund investment your money gets diversified in a lot of things, which helps in minimising the risk factor. Also if one particular sector does’nt perform well the loss can be compensated with profits made in other sectors.

Liquidity and Simplicity : You can sell or buy mutual funds anytime. So mutual funds are good if you want to invest in something which you can liquidate easily . Also MF are very simple to buy and sell .

Disadvantages of Mutual Funds

Risks and Costs: Changing market conditions can create fluctuations in the value of a mutual fund investment. Also there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.

No Guarantees: As Mutual funds invest in debt as well equities , there are no sure returns . Returns depends on the market conditions .

No Control: Investor does not have control on investment , all the decisions are taken by the fund manager. Investor can just join or leave the show.



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{ 5 comments… read them below or add one }

1 Milind September 7, 2010 at 3:46 pm

Hi Manish,

Good article to know about the disadvantages too. There are many articles which tell only good stories. This is different & really good one!
I want to ask one question regarding way of purchasing & sell of MFs. There are agencies like HDFC,ICICI direct those provide facility to open investment account for MFs trading online & take some charges against it. At the same time there are online channels (websites) like – Funds India, Fundsupermart etc those who provide MF trading facility. As per the first hand information about these portals they do not charge anything for mainataining such account for the investor. If there are any hidden charges which I do not know.

Which way is better? What are advantages & disadvantages of going with ICICI direct/HDFC verses online web portals like Funds india/fundsupermart? Which is the best portal you can suggest?

Thanks

Milind

Reply

2 Manish Chauhan September 7, 2010 at 4:58 pm

Milind

There is no difference, ICICI or FundsIndia , both are your brokers and they always earn front loan and trail commission from AMC every year. ICICI charges you additional commission directly to provide you the service , where as Fundssupermart/FundsIndia do not charge you directly, they just rely on Trail commission from AMC. no hidden charges .

Manish

Reply

3 Shyam November 6, 2011 at 11:53 pm

Thanks for the valuable points Manish.

I have just started with mutual funds, and have read three articles on your site, they are very informative. If you have any other links for mutual funds, provide me them also.

Thanks

Reply

4 Manish Chauhan November 8, 2011 at 9:35 am

Shyam

You can see all the articles in mutual funds category here : http://www.jagoinvestor.com/category/mutual-funds

Reply

5 Chetan Ambi October 14, 2013 at 9:05 pm

Thanks for the article !!

Reply

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