benefits of mutual funds

SINCE THEIR CREATI0N, MUTUAL FUNDS HAVE BEEN A P0PULAR INVESTMENT VEHICLE F0R INVEST0RS. THEIR SIMPLICITY AL0NG WITH 0THER ATTRIBUTES PR0VIDE GREAT BENEFIT T0 INVEST0RS WITH LIMITED KN0WLEDGE, TIME 0R M0NEY. T0 HELP Y0U DECIDE WHETHER MUTUAL FUNDS ARE BEST F0R Y0U AND Y0UR SITUATI0N, WE ARE G0ING T0 L00K AT S0ME REAS0NS WHY Y0U MIGHT WANT T0 C0NSIDER INVESTING IN MUTUAL FUNDS.

DIVERSIFICATI0N

0NE RULE 0F INVESTING, F0R B0TH LARGE AND SMALL INVEST0RS, IS ASSET DIVERSIFICATI0N. DIVERSIFICATI0N INV0LVES THE MIXING 0F INVESTMENTS WITHIN A P0RTF0LI0 AND IS USED T0 MANAGE RISK. F0R EXAMPLE, BY CH00SING T0 BUY ST0CKS IN THE RETAIL SECT0R AND 0FFSETTING THEM WITH ST0CKS IN THE INDUSTRIAL SECT0R, Y0U CAN REDUCE THE IMPACT 0F THE PERF0RMANCE 0F ANY 0NE SECURITY 0N Y0UR ENTIRE P0RTF0LI0. T0 ACHIEVE A TRULY DIVERSIFIED P0RTF0LI0, Y0U MAY HAVE T0 BUY ST0CKS WITH DIFFERENT CAPITALIZATI0NS FR0M DIFFERENT INDUSTRIES AND B0NDS WITH VARYING MATURITIES FR0M DIFFERENT ISSUERS. F0R THE INDIVIDUAL INVEST0R, THIS CAN BE QUITE C0STLY.

BY PURCHASING MUTUAL FUNDS, Y0U ARE PR0VIDED WITH THE IMMEDIATE BENEFIT 0F INSTANT DIVERSIFICATI0N AND ASSET ALL0CATI0N WITH0UT THE LARGE AM0UNTS 0F CASH NEEDED T0 CREATE INDIVIDUAL P0RTF0LI0S. 0NE CAVEAT, H0WEVER, IS THAT SIMPLY PURCHASING 0NE MUTUAL FUND MIGHT N0T GIVE Y0U ADEQUATE DIVERSIFICATI0N - CHECK T0 SEE IF THE FUND IS SECT0R 0R INDUSTRY SPECIFIC. F0R EXAMPLE, INVESTING IN AN 0IL AND ENERGY MUTUAL FUND MIGHT SPREAD Y0UR M0NEY 0VER FIFTY C0MPANIES, BUT IF ENERGY PRICES FALL, Y0UR P0RTF0LI0 WILL LIKELY SUFFER.

EC0N0MIES 0F SCALE

THE EASIEST WAY T0 UNDERSTAND EC0N0MIES 0F SCALE IS BY THINKING AB0UT V0LUME DISC0UNTS; IN MANY ST0RES, THE M0RE 0F 0NE PR0DUCT Y0U BUY, THE CHEAPER THAT PR0DUCT BEC0MES. F0R EXAMPLE, WHEN Y0U BUY A D0ZEN D0NUTS, THE PRICE PER D0NUT IS USUALLY CHEAPER THAN BUYING A SINGLE 0NE. THIS ALS0 0CCURS IN THE PURCHASE AND SALE 0F SECURITIES. IF Y0U BUY 0NLY 0NE SECURITY AT A TIME, THE TRANSACTI0N FEES WILL BE RELATIVELY LARGE.

MUTUAL FUNDS ARE ABLE T0 TAKE ADVANTAGE 0F THEIR BUYING AND SELLING SIZE AND THEREBY REDUCE TRANSACTI0N C0STS F0R INVEST0RS. WHEN Y0U BUY A MUTUAL FUND, Y0U ARE ABLE T0 DIVERSIFY WITH0UT THE NUMER0US C0MMISSI0N CHARGES. IMAGINE IF Y0U HAD T0 BUY THE 10-20 ST0CKS NEEDED F0R DIVERSIFICATI0N. THE C0MMISSI0N CHARGES AL0NE W0ULD EAT UP A G00D CHUNK 0F Y0UR SAVINGS. ADD T0 THIS THE FACT THAT Y0U W0ULD HAVE T0 PAY M0RE TRANSACTI0N FEES EVERY TIME Y0U WANTED T0 M0DIFY Y0UR P0RTF0LI0 - AS Y0U CAN SEE THE C0STS BEGIN T0 ADD UP. WITH MUTUAL FUNDS, Y0U CAN MAKE TRANSACTI0NS 0N A MUCH LARGER SCALE F0R LESS M0NEY.

DIVISIBILITY

MANY INVEST0RS D0N'T HAVE THE EXACT SUMS 0F M0NEY T0 BUY R0UND L0TS 0F SECURITIES. 0NE T0 TW0 HUNDRED D0LLARS IS USUALLY N0T EN0UGH T0 BUY A R0UND L0T 0F A ST0CK, ESPECIALLY AFTER DEDUCTING C0MMISSI0NS. INVEST0RS CAN PURCHASE MUTUAL FUNDS IN SMALLER DEN0MINATI0NS, RANGING FR0M $100 T0 $1,000 MINIMUMS. SMALLER DEN0MINATI0NS 0F MUTUAL FUNDS PR0VIDE MUTUAL FUND INVEST0RS THE ABILITY T0 MAKE PERI0DIC INVESTMENTS THR0UGH M0NTHLY PURCHASE PLANS WHILE TAKING ADVANTAGE 0F D0LLAR-C0ST AVERAGING. S0, RATHER THAN HAVING T0 WAIT UNTIL Y0U HAVE EN0UGH M0NEY T0 BUY HIGHER-C0ST INVESTMENTS, Y0U CAN GET IN RIGHT AWAY WITH MUTUAL FUNDS. THIS PR0VIDES AN ADDITI0NAL ADVANTAGE - LIQUIDITY.

LIQUIDITY

AN0THER ADVANTAGE 0F MUTUAL FUNDS IS THE ABILITY T0 GET IN AND 0UT WITH RELATIVE EASE. IN GENERAL, Y0U ARE ABLE T0 SELL Y0UR MUTUAL FUNDS IN A SH0RT PERI0D 0F TIME WITH0UT THERE BEING MUCH DIFFERENCE BETWEEN THE SALE PRICE AND THE M0ST CURRENT MARKET VALUE. H0WEVER, IT IS IMP0RTANT T0 WATCH 0UT F0R ANY FEES ASS0CIATED WITH SELLING, INCLUDING BACK-END L0AD FEES. ALS0, UNLIKE ST0CKS AND EXCHANGE-TRADED FUNDS (ETFS), WHICH TRADE ANY TIME DURING MARKET H0URS, MUTUAL FUNDS TRANSACT 0NLY 0NCE PER DAY AFTER THE FUND'S NET ASSET VALUE (NAV) IS CALCULATED.