Know the Advantages and Disadvantages of Investing in Mutual Funds By Avaneesh Parasar

One of the most popular investment vehicles these days are mutual funds. People who want to invest are more inclined towards understanding what mutual funds are all about. However, before you do so, it is very crucial for you to know that there are several advantages and disadvantages that are attached to them. As Avaneesh Parasar says, it is critical to know both sides of the coin. Stay with us till the end to know more!

What are mutual funds?

Mutual funds are a variety of funds that cover various industries and the different kinds of asset classes that are available. They are managed by professional managers who look into the trends that are going on.

What are the advantages of mutual funds?

According to Avaneesh Parasar, there are several advantages of investing in mutual funds and this is one of the main reasons why investors like to invest their money in them. These reasons are mentioned below:

• Dividend reinvestment: When the dividends and all the other interest sources are declared in relation to the mutual fund, they can be used as a means to purchase additional shares in the fund, which in turn plays a pivotal role in helping your investment grow.

• Advanced portfolio management: As per Avaneesh Parasar, whenever you buy a mutual fund, you are supposed to pay a management fee that is a part of your expense ratio. This fee is used by a professional portfolio manager who has the main role in buying and selling of stocks, bonds, etc. You get immense professional help in managing your funds and the fees that you have to pay is very less compared to the work they do for you.

• Safety or risk reduction: The process of diversification is used for the purpose of reducing the portfolio. This is because most of mutual funds will invest anywhere from 50 to 200 different securities. It all depends on the focus. Innumerable stock index mutual funds own more than 1,000 stock positions.

• Fair pricing: One of the most important advantages of mutual funds that Avaneesh Parasar lists out is that they are extremely easy to buy and also easy to understand. They are traded only once per day at the closing net asset value and have very low minimum investments. Through this, the chances of price elimination is very less and there are various arbitrage opportunities that are practised by day traders.

What are the disadvantages of mutual funds?

There are also many disadvantages of mutual funds. They are listed below:

• Tax inefficiency: In mutual funds, the investors do not have the choice when it comes to capital gains payouts. Investors mostly receive a distribution from the funds that are bad for taxes. This is due to redemptions, turnover, gains and losses that take place in security holdings.

• High expense ratios: The next disadvantage that is listed out by Avaneesh Parasar is that if you do not pay attention to the mutual fund expense ratios then, it can get out of hand and cause trouble. You have to be very cautious when you are investing in funds.

With this, we come to an end to the advantages and disadvantages of mutual funds that have been listed out by Avaneesh Parasar. It is always good to be aware of the pros and cons before investing!

Hrithik Chaurasia is a Digital Marketer, having more than 3years of experience in Digital marketing. His passion for helping people in all aspects of online jobs and freelancing.