MUTUAL FUNDS AND THE ADVANTAGES OF INVESTING IN MUTUAL FUNDS.

A mutual fund is an entity that pools the money of many investors - its unit holders - to invest in different securities. Investments may be in equities, debt securities, money market securities or a combination of these. Those securities are professionally managed on behalf of the unit-holders , and each unit-holder shares a pro-rata share of portfolio i.e entitled to any profits when the securities are sold , but subject to any losses as well.

THE ADVANTAGES OF INVESTING IN MUTUAL FUNDS.

Professional Investment Management:
Mutual funds hire fulltime , high level investment professionals. Funds can afford to do so as they manage large pools of mone. The managers have real- time access to crucial market information and are able to execute trades on the largest and most effective scale.

Diversification:
Mutual funds invest in broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any security. Mutual fund unit-holder can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities .

Low Cost:
Mutual funds provide investors the benefit of economies of scale, by virtue of their size. Though the individual investors contribution may be small , the mutual fund itself is large enough to be able to reduce costs in its transactions.

Convenience & Flexibility:
Mutual funds units in modern times are not issed in form of certficates. They are instead issed as account statements , with the facility to hold units in fractions upto 4 decimal point. It is also simpler for investors to make additional investments, to repurchase a part of their investments, to re-invetsdividends, to convert their holdings from one fund to another. Mutual funds also offers flexibility for small investors to regularly save a fixed amount in a mutual fund and create saving plans that suit their financial goals.

Reduction in risk:
Mutual funds invest in portfolio of securities. This means that all funds are not invested in the same investment avenue. It is well known risk and return of various investments options donot move uniformly or in sympathy with one another. If a pharma company share is going down, an infotech company's share would be moving up, if the equity market is going down, the debt markets may be moving up. Hence holding a portfolio that is diversified across investment avenues is a wise way to manage risk.

Liquidity:
In open ended schemes, you can get your money back in less than four working days at net asset value related prices from mutual fund itself.

Transparency:
You get regular information on the value of your investment in addition to the disclosure on the specific investments made by the mutual fund scheme.

Keywords : mutual funds, investment management, diversified investment, equity, debt, hedge, unit linked