Advantages of Mutual Funds
The risks are much lower when investing in a mutual fund when compared to investing in a single stock or bond. Mutual funds also tend to hold a few securities which reduce the risks significantly. Diversification can be provided by mutual funds. This is very important for a well-balanced portfolio. This is particularly important when they come in small amounts.
The process of picking the best stocks and bonds for your portfolio is almost impossible and time consuming. Thoughts to even try to beat the market are almost unachievable. But with the help of a professional mutual fund manager, you can save your time and the trouble to get the best stocks. You wouldn’t even have to make any of the head aching decisions.
Minimal transaction costs
If you’re planning to get the stocks and bonds on your own, it’s going to be pretty harsh on the costs. This is because the process of buying individual stocks and bonds increase the costs through its sales charges and other fees. Mutual funds usually purchase them in large amounts. Therefore, offering the advantage of economies of scale in purchases and sales. This means that mutual fund costs can and will decrease because mutual fund’s size of assets will definitely increase. Brokers themselves tend to charge lower fees; this is to attract a larger amount of the mutual funds.
Liquidity refers to the ability of converting asset to cash quickly. Mutual funds usually have high liquidity ratios. This means you are able to sell your shares and collect money from open-ended funds. This process typically takes less than two business days to process. Open-end no-load funds mean that investors do not need to pay for any transactions feed when you buy or redeem any of your shares. Closed-end funds can be found on stock exchanges. These kinds of funds can be traded for above or below its net asset value.
Above are some of the advantages of investing in a mutual fund. Whether or not to invest in a mutual fund depends fully on you. All the best in making the right choice!