Investing in different forms is a new-age trend, and anyone can easily perform investing, but one needs to possess the ability to take the risk. Investment, in general, means risk, especially when it comes to investing in stocks, cryptocurrency, and others.
However, there is one way where you can invest and not worry much about your money, and that is Mutual Funds.
| Advantages | Disadvantages |
|---|---|
| Mutual Funds have higher liquidity | Mutual Funds do not have a guarantee of returns |
| Mutual Funds are a safer option and can be afforded by any individual | Mutual Funds involve fees and commissions |
| Mutual Funds have diversification | Mutual Funds include taxes |
| Mutual Funds cost efficient and involve professional management | Mutual Funds involve a certain amount of risk |
| Mutual Funds have tax benefits | Mutual Funds returns fluctuate a lot more |
| Mutual Funds are flexible and are well regulated | Mutual Funds involve over-diversification |
Pros of Mutual Funds
Mutual Funds are considered comparatively lesser than other forms of investments. Apart from this, there are other lists of advantages that you need to discern. Here you go!
Higher liquidity
Fortunately, most mutual funds do not have rigid lock-up periods, which makes the investment worth it, as you can take back your money when needed.
While other investment instruments, such as Public Provident Funds and ULIPs, have a strict lock-up period where you will have to secure your money for a certain period. And this justifies that Mutual Funds have higher liquidity.
Safer option
When compared to other investment instruments, Mutual Funds are a much safer option to invest into.
Diversification
Mutual Funds distribute the complete investment amongst all the several classes and securities, which assures diversification.
Cost efficient
Yes, Mutual Funds are cost-efficient. If you are someone who is just a beginner in investing, then mutual funds are a great way to start.
You start investing in mutual funds with less money. It is also claimed that mutual funds have less expense ratio when compared to other investment instruments. You can precisely choose the securities you want, considering the cost factor.
Tax benefits
Mutual Funds have tax benefits for their holders along with good returns. This will be one of the finest options to invest in as you can get two things at once with minimum risk and less everyday involvement.
Flexible
Mutual funds are flexible for two major reasons. Firstly, the lock-up period in mutual funds is pretty flexible; you can withdraw your money when needed, unlike other investment instruments.
And the other factor is that you get to choose your securities, and if you have changed your mind and would want to go for a different security, you can still do it.
Well regulated
Mutual Funds are indeed very well regulated by the team, as it allows you to diversify yours among different funds, enabling you to meet your investment goals and risk tolerance.
Mutual funds do not involve much paperwork and issues of delay in payment or faulty deliveries, which clearly says how well-regulated mutual funds are.
Professional management
If you are someone who does not have adequate time to look over your investments on an everyday basis, then mutual funds are the best option for you. You do not require much effort, as professional management will help you out in getting the right things done at the right time.
The management works effectively, so all you need is to invest, and the management takes off the rest.
Affordable
Anyone can afford Mutual Funds. You can start investing with a little money and secure your money as long as you want without worrying about it. You can choose between lump sum investments or SIP as per your budget and convenience.
Well, these were a list of advantages of Mutual Funds. When you consider all of the above advantages, it clearly says how easy and safer it is to invest in mutual funds.
Disadvantages of Mutual Funds
Though Mutual Funds are the safer option, it still involves some amount of risk to a certain extent; apart from the risk, here are a few complications that you might see in Mutual Funds. Here you go!
No guarantee of returns
Usually, mutual funds invest your money into some new startups; in that case, it is pretty difficult to get good returns or to even get any returns as you can never really expect a new startup to make huge profits at the initial stage. So mutual funds do not have a guarantee of returns.
Involve fees and commissions
As professional management takes care of and manages your accounts and money, there are fees and commissions for getting the work done. Sometimes they might even charge admission fees to get into and exit fees if you want to exit from mutual funds.
Include taxes
Mutual Funds include taxes depending on the type of returns. So it is certainly not applicable to all mutual funds’ investments.
Involves risk
Mutual Funds investment clearly states that they are subject to market risks, so it involves risk to a certain extent concerning the money. Moreover, mutual funds invest in startups that cannot certainly make profits at the beginning.
Returns fluctuate
You cannot expect any exact amount in return, as the mutual funds’ returns fluctuate a lot more than you expected them to. The market is never the same, and it keeps fluctuating according to the environment all around the globe. Hence, one needs to adhere to the portfolio.
Over-diversification
The over-diversification will deter you from making huge profits from the returns though they help you make profits from the diversification. So it is suggested to buy a few mutual funds at one time instead of too many mutual funds.
Well, these were a list of disadvantages of Mutual Funds. When you consider all of the above disadvantages, it clearly says though it is easy and safer to invest in mutual funds, it still has a downside.
All in all, we discerned both the advantages and disadvantages of mutual funds. So at the end of the day, it is up to the individuals to either go for it or turn it off, considering all the other factors.
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