Mutual Funds are a type of investment tool managed by a fund manager who pools money from different investors to buy securities and divide the returns among the investors.
Mutual funds are excellent investment mediums through which you can invest your savings in bulk or every month with SIP. It is one of the most flexible and reliable investment tools, which is beneficial for enjoying long-term finances.
In this blog, you will learn about the pros and cons of Mutual Funds.
Pros of Mutual Funds
The advantages of investing in mutual funds are:
1. Professional Management
Mutual Funds are a great investment tool as it is managed by managers who are highly qualified and knowledgeable in handling people’s funds.
The professional management of mutual funds allows for lesser room for error and is one of the most reliable investment schemes.
In mutual funds, fund managers pool money from various investors to buy securities and provide the investors with a return according to their money.
2. Long-term Benefits
Mutual Funds are an investment technique that can help gain benefits in the long term. If a person invests money in mutual funds for more than five or ten years, they can reap the maximum benefits from the investment tool.
As the years add on to your money, you can enjoy the advantages of compounding on your investments which can help you reach your long-term goals easily.
So, if you are a person who has 5-year or 10-year goals, then capitalize on your dreams by investing in mutual funds.
3. Choice of Risk
Mutual Funds are the most flexible and accessible investment tool that allows investors to analyze their risk appetite and sign up for their desired mutual fund.
Mutual funds can be of three types based on risk appetite- low risk and low returns, medium risk and medium returns, and high risk and high returns.
Based on an individual investor’s risk appetite, they can choose their desired mutual fund for investments.
Mutual Funds are extremely reliable investment schemes because they are managed by professionals who have good knowledge of finance and trading.
Moreover, mutual funds have risk appetite options that enable more reliability. Investments are always a hard decision to make because it involves a person’s savings. Hence, the reliability factor in an investment tool is a great advantage for people in choosing the best investment plan.
Mutual Funds are a very flexible investment option as most do not have any limitations or bindings for starting or stopping your investment journey. There is also flexibility in withdrawals in times of emergency, especially with SIPs.
Flexibility is a big question with other investment options like stocks, gold, etc. Mutual funds are helpful because of their flexible withdrawal options during emergencies or money requirements.
Cons of Mutual Funds
Although mutual funds have many advantages, it also has some downsides, which are as follows:
1. Not for Experienced Investors
Experienced Investors have been investing money for many years, and after some years of accumulating wealth, they would like to take more risk instead of opting for mutual funds.
Even with the high-risk appetite category of mutual funds, the returns are not as high as it is by investing in the correct stocks. Trading stocks can help experienced investors much more and can help them earn quick money, too, sometimes.
2. Lesser Profit
Mutual Funds are less risky investment options; hence the returns are also less compared to other investment tools like stocks, gold, etc.
People with good knowledge of finance and trading would not opt for mutual funds as they can be very basic for them, and they can make greater investments in gold or stocks to earn greater returns.
3. More time
Mutual Funds are a great investment tool for beginners who are new to the journey of finance; hence they can give a long time mutual funds demands.
Unlike people who have already accumulated some wealth for themselves and now they want their money to work for them and give them larger returns in a lesser span.
The more time-consuming with lesser returns compared to other investment tools is a major drawback regarding Mutual Funds.
4. Fluctuating Returns
Mutual Funds are managed by a Fund Manager who buys securities by pooling money from investors. Hence, the returns you get for your invested amount fluctuate according to the market situation.
The fluctuating returns are a great concern for investors. It can be scary to invest in mutual funds when there is no stable return guarantee.
The mutual fund terms and conditions read out loud about the risk and fluctuations in the market; hence most people can be unsure about investing in mutual funds with fear.
Overall, Mutual Funds are a great option to begin your investment journey. It is a great tool to instill financial discipline in a person. When your financial goal changes eventually after years of investing, and you have enough funds to diversify to other investment options, then you must choose those options that can give you higher returns.
The ultimate aim of the investment is to make money lying in your bank accounts as savings work for you and help you earn more. A regular bank gives you a return of 6-7% per annum, but a mutual fund or any other investment tool will help you make more money for your future needs, like children’s education.