| |
|
|
| |
|
|
| |
| |
 |
| |
|
Since their creation,
mutual funds have been a
popular investment vehicle
for investors. Their
simplicity along with other
attributes provide great
benefit to investors with
limited knowledge, time, or
money. To help you decide
whether mutual funds are
best for you and your
situation, we are going to
look at some reasons why you
might want to consider
investing in mutual funds. |
|
|
|
Diversification |
One rule of investing that both large and small
investors should follow is
asset
diversification.
Diversification involves the
mixing of investments within
a portfolio and is used to
managed risk. For example,
by choosing to buy stocks in
the retail sector and
offsetting them with stocks
in the industrial sector,
you can reduce the impact of
the performance of any one
security on your entire
portfolio. To achieve a
truly diversified portfolio,
you may have to buy stocks
with different
capitalizations from
different industries and
bonds with varying
maturities from
different issuers. For the
individual investor, this
can be quite costly.
By purchasing mutual funds,
you are provided with the
immediate benefit of instant
diversification and asset
allocation without the large
amounts of cash needed to
create individual
portfolios. One caveat,
however, is that simply
purchasing one mutual fund
might not give you adequate
diversification - check to
see if the fund is
sector or
industry specific. For
example, investing in an oil
and energy mutual fund might
spread your money over fifty
companies, but if energy
prices fall, your portfolio
will likely suffer. |
|
|
|
Economies of Scale |
The easiest way to
understand
economies of scale is by
thinking about volume
discounts; in many stores
the more of one product you
buy, the cheaper that
product becomes. For
example, when you buy a
dozen donuts, the price per
donut is usually cheaper
than buying a single one.
This occurs also in the
purchase and sale of
securities. If you buy only
one security at a time, the
transaction fees will be
relatively large.
Mutual funds are able to
take advantage of their
buying and selling size and
thereby reduce
transaction costs for
investors. When you buy a
mutual fund, you are able to
diversify without the
numerous
commission charges.
Imagine if you had to buy
the 10-20 stocks needed for
diversification. The
commission charges alone
would eat up a good chunk of
your savings. Add to this
the fact that you would have
to pay more transaction fees
every time you wanted to
modify your portfolio - as
you can see the costs begin
to add up. With mutual
funds, you can make
transactions on a much
larger scale for less money.
|
|
|
|
Divisibility |
|
Many investors don't have the exact sums of money
to buy round lots of
securities. One to
two hundred Rupees is
usually not enough to buy a
round lot of a stock,
especially after deducting
commissions. Investors can
purchase mutual funds in
smaller
denominations, ranging
from Rs. 500 to Rs 5,000
minimums. Smaller
denominations of mutual
funds provide mutual fund
investors the ability to
make periodic investments
through monthly purchase
plans while taking advantage
of
rupee-cost averaging.
So, rather than having to
wait until you have enough
money to buy higher-cost
investments, you can get in
right away with mutual
funds. This provides an
additional advantage -
liquidity. |
|
|
|
Liquidity |
|
Another advantage of mutual funds is the ability
to get in and out with
relative ease. In general,
you are able to sell your
mutual funds in a short
period of time without there
being much difference
between the sale price and
the most current market
value. However, it is
important to watch out for
any fees associated with
selling, including back-end
load fees. Also, unlike
stocks and exchange-traded
funds
(ETFs), which trade any time
during market hours, mutual
funds mutual funds transact
only once per day after the
fund's net
asset value (NAV) is
calculated. |
|
|
|
Professional
Management |
|
When you buy a mutual fund,
you are also choosing a
professional money manager.
This manager will use the
money that you invest to buy
and sell stocks that he or
she has carefully
researched. Therefore,
rather than having to
thoroughly research every
investment before you decide
to buy or sell, you have a
mutual fund's money manager
to handle it for you. |
|
|
|
Conclusion |
|
As with any investment, there are risks involved
in buying mutual funds.
These investment vehicles
can experience market
fluctuations and sometimes
provide returns below the
overall market. Also, the
advantages gained from
mutual funds are not free:
many of them carry
loads, annual
expense fees and
penalties for early
withdrawal. |
|
|
|
|
|
|
| |
 |
| |
| Usefull Links: - - - - - - - |
| |
| | | | | | | |
| |
| © Copyright 2008 Strategic Stock Brokers Pvt. Ltd. All Rights Reserved. WEB MASTER : |
| |
|
|
|
|
