Should You Invest in a Mutual Fund?

Mutual funds are one of the recent investment vehicles that received much attention for its new style. Many people even think it synonymous to investing. However, if you plan on investing in one, you should first consider the pros and cons of a mutual fund.

What is a Mutual Fund?

Basically, a mutual fund is a fund which is professionally managed by an investment company. It pools money from different investors to purchase securities such as  stocks, bonds, and other similar assets, depending on the investment objective of such fund. The investment company that served as the collective investment vehicle then issues shares to the public as representation of their holdings in the mutual fund.

Pros

The surge in popularity of mutual funds cannot be attributed solely to the potential profitability of this investment vehicle. People have turned to mutual funds for the following reasons:

1. Professional Management of Your Money

Perhaps the most important advantage that a mutual funds affords you is the advantage of expertise, experience, and licensure. Managing one's own portfolio is already a time-consuming and daunting task especially for the inexperienced trader. Having a professional handle your investment is a load of your chest. And the relative affordability of a mutual fund partnered with professional management and minimal time allotment already makes it a worthy investment.

2. Diversification and Liquidity

Diversifying your assets is one effective way of reducing risk. Usually, traders manage a portfolio and diversify assets by collecting various securities. In a mutual fund, you own shares instead of individual stocks or bonds. Mutual funds are also highly liquid. You have the power to cash in your share at any given time.

    

    3. Easy Process

Another big advantage for mutual funds is that it is easy to understand with a simple process to follow. To own a mutual fund, you just find an investment institution which can be a bank, an insurance company, or other such financial institution and purchase your desired mutual fund. The minimal investment is relatively affordable and payment may be done on an automatic purchase scheme.

Cons

On the other hand, mutual fund aren’t all perks. There are still some aspects from keeping it from being the best investment vehicle out there.

    1. Professional Management of Your Money

Having a professional manage you can be a double-edged sword. As investing and trading are not guaranteed profits and do not have definite earning strategies, the question of handling assets all comes down to the question, “What can a professional do that I can’t?” This disadvantage could become fatal because, professional or not, earnings in a mutual fund are not guaranteed but the manager’s fees are.

2. Costings

And because somebody else is handling your money, safekeeping you money, and assessing your money in a maintained mutual fund, these somebodies must be paid. All these expenses fall on you, the investor.

3. Dilution

While mutual funds offer a great opportunity for diversification, it can come to a point that there’s too much going on and you won’t actually feel the profits anymore. The overall return can be too little.

A mutual fund has its pros and cons but it will ultimately be up to you as an investor whether to go for it or not.