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Following is
a list of mutual fund features and some of the advantages and disadvantages
of investing in mutual funds.
Features
Of Mutual Funds |
Features |
Advantages |
Disadvantages |
| Diversification |
You can invest in a variety of industries and
categories of stocks, bonds and other securities reducing investment
risk. With a broad investment base, total returns are not as threatened
by a few unsatisfactory performers. |
Because mutual funds have holdings in many companies, high returns
from several investments may not make much difference in your overall
return. It is possible to over-diversify your investments. |
| Liquidity |
You can generally redeem or sell your shares
at any time at their current net asset value. |
When you sell your shares, you may have a gain that is taxable for federal income
tax purposes or a loss of principal. Losses may be deductible for federal income tax purposes. |
| Flexibility |
Fund families offer a variety
of mutual funds with different financial objectives managed by one
company. You can reallocate investments among those funds as your
goals and objectives change. |
Movement of your monies between mutual funds may result in a taxable gain for
federal income tax purposes or a loss of principal. Losses may be deductible for federal income tax purposes. |
| Convenience |
Most funds allow you to invest automatically
with an allotment or automatic withdrawal from your checking account
(also known as dollar-cost averaging). By making fixed, regular
investments into a mutual fund, regardless of share price, you may
lessen your risk of putting a large amount of money in a single
investment at the wrong time. Generally, you can buy or sell shares
by phone, mail or online. |
Such automatic allotment or withdrawal plans
do not assure a profit and do not protect against losses in declining
markets. |
| Professional Management |
Mutual funds are managed by professionals who
research and evaluate the investment potential of hundreds of different
companies. Individual investors usually cannot get the same level
of investment advice without a large portfolio. |
The investor cannot directly select the underlying
fund investments and generally cannot control the amount of capital
gains triggered by the fund. Mutual funds are not always tax efficient. |
| Regulation |
The industry is regulated by the Securities and
Exchange Commission (SEC) that imposes requirements designed to
protect investors from abuse. |
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Basic Money Management
Basic Money Management
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