Advantages and disadvantages of mutual funds

Investing in mutual funds can provide attractive benefits to your personal financial planning as an investor. But that does not mean that mutual funds have always been profitable because there are losses to be borne if you invest in this kind of investment instruments.

Advantages of Mutual Funds

Professional Management - The main advantage of buying mutual funds is to have a management team that can manage your money professionally. Investors generally do not have enough time and expertise to manage their own portfolio.

Diversification - Buying mutual funds, compared to buying stocks and bonds separately, the risk will be more diversified. A mutual fund generally invests into hundreds of different stocks in various industry sectors. It is certainly difficult to do with "small" funds.

Economies of Scale - Mutual funds do buy and sell securities in large quantities in a time so that the transaction costs that occur will relatively lower compared to transaction costs by individual investors.

Liquidity - As with stocks, mutual funds can be converted into cash quickly and easily.

Simplicity - Buying a mutual fund is relatively easy and inexpensive, where many commercial banks provide services to buying and selling mutual funds that are integrated with other bank's services.

Disadvantages of Mutual Funds

Professional Management - It could be a disadvantage because the professionals are not necessarily better than you personally. Investment management can do mistakes, and they still get paid even make you lose.

Cost - Create, distribute, and manage the mutual funds require a lot of cost. All, ranging from the investment manager's salary up to the investor reports require a fee. These costs are charged to investors, although it varies between one another. But the failure to identify the cost could give negative consequences in the long run.

Dilution - Too much diversification will make the investment manager harder to do analysis. High returns of several investment instruments will not provide significant impact on total return. The greater the mutual funds it will be difficult to allocate funds for a good investment.

Taxes - When a fund manager sells securities, the tax would arise. Mutual fund investment began to feel some quite stifling taxes for subsequent years.

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