Pros and Cons of Mutual Fund Investments

Every investment decision has some pros and cons. And in any case it is not possible to avoid all the cons and have all the pros alone. Both the pros and cons travel together. So it becomes important to balance those pros and cons so that you are able to benefit most out the opportunities available to you.

When you are planning to invest a small sum of money, it is always difficult to decide to which financial instrument to invest as different instruments offer benefits and very few are good enough to get the maximum out of the money. Here comes in mutual fund investment to rescue from dilemma. Mutual fund investment is suitable for all kind of investors. In the below section pros and cons of mutual funds are summarized.

Pros of Mutual Funds

Mutual funds offer huge benefits to common investors. Those benefits are summarized as below:

Affordable: Anyone can invest in mutual funds even with a sum of Rs.1000. And it is quite easy.

Flexibility: It has flexibility of periodically or once time investment.

Professional Management: For an average investor, it is a difficult task to decide in which securities to invest, how much to invest and when to sell. By buying a mutual fund, one has access to professional fund manager who manages your money for management fee.

Diversification: It is quite risky to invest in one security and diversification is necessary for risk aversion. But for an average investor, it is difficult to invest in various securities as the capacity to invest is very low for common person. Mutual funds provide the facility of diversification even for an amount of Rs.1000 also.

Liquidity: Unlike several other forms of savings like the public provident fund or National Savings Scheme, you can withdraw your money from a mutual fund on immediate basis on ant trading day.

Tax Benefits: Equity linked saving scheme also provide tax break to the investment up to limit of Rs.100000.

Cons of Mutual Funds

Like all the other investment avenues, mutual funds do have some limitation. Those limitations are as below:

Lack of personal touch: One cannot expect personalized touch to mutual fund investment. Mutual funds do not manage the fund available to them according to the need of investor’s need.

Risk: Mutual Fund investment is risky and there is always risk capital erosion.

But if we analyze, we find that mutual fund investment is one of the best investment option for an average investor.



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