Mutual fund disadvantages do exist. While mutual funds are attractive to many investors seeking to keep their portfolio diverse, they aren't perfect. Becoming familiar with the following mutual fund disadvantages will make you a wiser investor overall:
1. No Control. By definition, mutual funds are a collection of investment vehicles, such as stocks, bonds and securities. They are run by a group of fund managers who make decisions about the pooled assets. While many investors like to turn things over to knowledgeable experts, others may not like to relinquish so much control over fund management.
2. Risk. Every investment vehicle carries with it some risk, although some are more risky than others. Mutual funds are not guaranteed like a bank deposit is, and the value of the mutual funds could possibly go lower than what you initially invested in it. Mutual funds are subject to market fluctuations as well, unlike CDs.
3. Costs. There are always costs associated with the management and operation of a mutual fund, and the cost may exceed the fees for other types of investments. You'll have to pay these costs and fees even if the fund has negative returns. However, you can skip the middleman and save on some fees by investing in a no-load mutual fund.
4. Too Diverse. Mutual funds are diverse enough that any single drop in any market can be offset by the other more stable investments. However, if a section of the market skyrockets, those in a mutual fund won't be able to jump in and take advantage of any single dramatic value increase.
5. Liquidity. Mutual funds operate with a large portion of the money being put in and withdrawn at any given time from a number of different investors. Therefore, a good portion of a mutual fund portfolio is kept in cash-great for facilitating deposits and withdrawals, but not so great for making money grow via investments.
6. Slow Trades. To buy or sell a mutual fund, it takes some time for the transaction to take place. Unlike other forms of investments, such as an individual stock or an ETF, mutual fund transactions occur at the close of the market that day.
7. Capital Gains. When capital gains are realized, sometimes they can be large and unexpected. This can force investors to pay taxes they had not planned for.
These disadvantages shouldn't make you afraid of mutual funds. All investments carry risk, and that includes mutual funds. Knowing these potential problems can help you sort through the many mutual fund options that are available.
 | Mutual funds allow you to invest in a diversified mix of stocks, bonds or money market funds through a single transaction. Before you invest, you should understand the different types of mutual funds, how they invest and how to compare their performance. |
 | Mutual fund fees often serve a justifiable purpose, but they can also have a noticeable affect on an investment's bottom-line return. Paying fees isn't always a bad idea, but you'll need to research the fees charged, as well as when they're charged, to minimize their effect on your investments. |
 | By narrowing down what types of mutual funds appeal to you most, you'll find yourself ready to make an investment you can feel good about. |
There are many sources where it is possible to buy mutual funds. Banks, Insurance companies, brokerage houses, discount brokers and advisers, and mutual fund companies have a means of buying and selling mutual funds through them. |
There are close to 80 million people in America that are investing in mutual funds, and that is a huge number. It is no wonder that mutual fund investing is almost a household name and there are a good number of companies that are providing a closely watched and regulated service. |
