Advantages of the mutual funds

Collective investment schemes are widespread in the developed countries. Their popularity is due to the possibility to invest a considerable volume of the accumulated funds in different equities. Minimal expenses and the active professional management give the opportunity to realize more attractive profitability for the investor compared with the independent investing.

1. Risk diversification

One of the biggest advantages is the diversification. The diversification is a risk reducing investment strategy, which is executing  by investing in different categories of investment instruments: shares, bonds, currency, etc., including equities of one category, but issued by different issuers and different countries. The bigger is the amount of the managed funds, the bigger is the possibility to achieve an effective diversification. In this case investment can be made in financial instruments, different by type and risk level. So, if some instrument generates loss that does not effect seriously on the common investment financial result, because the loss is
compensated by the profitability of the other instruments in the portfolio.

2. Professional investment management

Financial decisions about management of the accumulated funds are taken by experienced professionals according to the Fund’s strategy, based on careful market analysis. It i’s not necessary for the investors to spend time and energy to enter in the world of finances or to watch constantly the economical and market events.

3. Liquidity

The advantages of the different Mutual Funds are revealed in different investment periods (the minimum recommended investment period). Risk and balanced mutual funds have a higher potential profitability, but at the same time, the investor takes a bigger risk for the investment and the recommended investment period is longer. Conservative and money market funds are designed for investors who are looking for low risk and profitability in short-term period.
No matter of the type of the mutual fund (risk, balanced, conservative), it has to execute all redemption orders, so the investor could withdraw his money at every time.

4. Saving time and expenses

Individual investor should spend considerable part of his time to watch the market changes, dates of payment of interests, receiving of distributed dividends etc. This time is saved for mutual fund investors. The management of the funds is made by professionals, whose job is the everyday monitoring of the large flow of information, preparing of analysis and prognoses and using every favorable opportunity of the market.

The active trading of financial instruments is connected with different expenses (fees, commissions etc.)  The amount of these expenses depends on the volume of the traded instruments – the bigger is the value of the deal, the smaller is the amount of these expenses. The financial resource of the Mutual fund determines the smaller burden of the transaction expenses on a deal, compared to an individual investor.

Total expenses for an account of Mutual fund’s investor are as a whole less than the commissions, paid for individual purchase of equities.