Mutual Funds: Advantages

There are advantages and disadvantages when it comes to investing, and mutual funds are no exception.

Let’s list down some of those pros and cons that come along with it, starting with the advantages:


Economies of Scale
This is the cost advantage that shows up when the output of a product increases.

When you buy economies of scale, you can be spared of a lot of commission charges that you need in order to have a diversified portfolio. If you buy only one security at a time, it will lead to high transaction fees, which will then consume a considerable chunk of the investment. Having a hundred dollar per average person will only lead him or her to buying a small amount of stocks but if you take part of mutual funds, that amount of money will buy many mutual fund shares.

This is the mix of investments and assets within a portfolio in hopes of reducing risk. It is one of the advantages to investing in mutual funds.

Diversification is seen when you buy individual stocks in retail and offset them with stocks from the industrial sector. It can be truly shown through a portfolio that has securities with different capitalizations and industries, and bonds that vary in issuers and maturities.

Professional Management
Mutual funds are run by managers. These people spend days doing research regarding securities and devising investment strategies, meaning that these funds can provide experience in a low-cost way for individual investors, which can then help them benefit from professional money management.

coins stacked next to each other

Mutual funds can be bought and sold easily, seeing as it trades on the major stock exchanges. This qualifies mutual funds as high liquid investments.
So there you go. The first part of this two-part discussion regarding the pros and cons in investing in mutual funds.

These advantages mostly make mutual funds appealing for the younger, novice or other individual investors who no longer wants to actively manage their money.

Mutual funds offer high liquidity, and are mostly easy to understand. Even if you don’t have a lot of money to spend and spread around, it still offers good diversification. And of course, it has potential for good growth.

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