When you think of investment securities that you would consider putting your money in, first consider the advantages that you will derive from them.
Mutual funds, just like any other type of investment, have advantages that make them popular among investors.
However, it is not all bread and butter as far as the advantages are concerned because, what may be an advantage for one investor may be a disadvantage for another.
It is up to you as an investor to weigh a given advantage and see whether it works for or against your investment goals and objectives.
One of the most popular reason why one should invest in mutual funds is the fact that they provide you with room for diversification.
Diversification is one aspects of investing that plays a crucial role in helping you spread the risk that is associated with any given investment.
It simply implies investing in many different types of stocks, shares and bonds, such that if one carries a high risk factor, it is covered by another whose risk factor is not as high.
In case something happens and the high risk investment incurs a loss, the fund may not report it.
For example, if you have stocks in the industrial sector which you know are likely to be affected by poor performance in the economy, you may want to offset them with stocks in the utility categories, which are likely to remain relatively the same whether the economy performs poorly or not.
As you purchase mutual funds, you will be provided with yet more benefits of diversification.
For example, you might think you are diversifying your investment by investing in two different types of stocks like oil and energy, but when energy prices are affected positively, the two types will be affected because, they fall under the same category.
The other advantage that you will never miss to enjoy is economies of scale.
In other words, if you invest in a variety, you will enjoy the benefit of reduced costs during purchase or even as you redeem.
One other advantage, but which seems to be a contentious is that, mutual funds are professionally run by a manager who oversees everything on behalf of the investors.
The advantage with this is that, the investor is relieved of the hard task of having to follow up on what is happening in the market, and instead, all this is handled on his behalf by the manager.
The manager carries out research and makes an investment decision on behalf of the investor, such that, the investor does not have to worry about anything.
However, in itself, this is a disadvantage since the managers do not consult the investors.
This may give room for wrong decision making by the manager.