Key takeaways
Mutual funds have five main advantages: low cost, professional management, diversification, liquidity, and safety.
Understanding the advantages of mutual funds
Mutual funds are popular among investors for the following reasons:
Low Cost. Rather than saving enough money to buy more costly financial assets, such as Google stock, major commodities, and real estate bonds, investors can purchase mutual funds in smaller denominations, ranging from $100 to $1,000. Mutual funds enable individual investors to participate in investments that may only be available to big investors previously.
Professional Management. It is one of the most important advantages of mutual funds. Each mutual fund is managed and operated by a fund manager who graduates from a famous university with deep investment knowledge and rich investment experience. Since fund managers take care of all the challenges, investors can sit back without keeping regular track of market movement.
Diversification. It is effective in mitigating risks. As mutual funds invest in different assets such as equity, gold, and debt, investing in mutual funds is the easiest way to achieve diversification for investors.
Liquidity. Mutual funds are easier to buy and sell than tangible assets, such as cars or houses. Investors can liquidate their investment into cash easily by redeeming part of the whole fund securities.
Safety. In the U.S., mutual funds are under stricter regulation than other pooled investment vehicles. These funds must comply with at least three federal legislations and closely monitor the SEC (United States Securities and Exchange Commission). This protects the interests of the investors to a large extent. Moreover, the SEC requires all the mutual funds to file shareholder reports in a regular basis. Thus, investors can trust the information disclosed by mutual funds.
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