Managed by professional managers, an investment portfolio is designed to achieve specific objectives. Portfolios typically contain 50 to 200 different stocks, bonds and other securities. The composition of each portfolio varies according to the fund’s investment objectives and the level of risk permitted. 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	“Families” of funds 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.

Updated Thursday, March 27, 2008