Investing in mutual funds: Pros & Cons

April 02, 2022 4 min read

Investing in mutual funds: Pros & Cons

Investing in mutual funds: Pros & Cons

Investment funds can be said to be the best choice for many investors who want to invest in stocks but do not have the time. The so-called fund is when everyone collects a sum of money and then asks professional managers to help us operate stocks or any investment products. Let everyone buy good stocks to make a profit, but what are the benefits you can have from investing in mutual funds?

Mutual funds allow ordinary individual investors to participate in investment portfolios managed by professional managers, and fund investors can gain or suffer losses from the fund according to the size of the funds invested.

What is the fund?

Before investing in fund, you must first have at least the following understanding of the fund:

A fund is an investment vehicle, usually formed by a portfolio of stocks, bonds, or other financial instruments.

Funds allow individual investors, with a relatively low capital size, to obtain a diversified portfolio managed by professional managers.

Each type of fund represents a different investment target or style, which can be divided mainly according to the issuing country, the investment market, the active and passive operation mode, and the type of investment target.

Buying funds may be charged fees such as handling fees, account management fees, manager fees, and custody fees, which will directly affect the final rate of return.

Broadly speaking, as long as the funds of all people are centrally managed, it can be called a fund.

For example, mutual funds, hedge funds, pension funds, charitable funds, and ETFs are often heard. These funds are all units that centrally manage many assets. According to their characteristics, they can be divided into many types.

Most of the funds we usually talk about in chat or on news networks refer to as mutual funds.

A mutual fund refers to a type of fund that anyone can subscribe to and redeem at any time. It belongs to a public fund, which means a fund that can publicly raise funds.

Because the general public can buy and sell, in order to make it safe, the manager's operation is also relatively limited.

Including the need to write a report before buying the target, some stocks or derivatives are not allowed to be purchased, the fund performance is regularly announced, a single shareholding cannot exceed a certain percentage, and short selling is not allowed. Through these restrictions, the security of the fund is improved and the possibility of fraud is reduced.

In addition to mutual funds to invest in 2022, there are also hedge funds and hedge funds that are less exposed to ordinary people. They are funds that are only suitable for high-asset groups to buy.

This type of fund is not open to unspecified people, so it is also called a private equity fund, which means that it can only raise funds privately for specific people.

Because there are no restrictions on fund operation tools and strategies, the range of performance can be much larger than that of mutual funds, good can be very good, bad can be very poor, Also because of the high risk of private equity funds, they are generally not publicized and are generally only bought for high-asset groups.

The advantages and disadvantages of investment funds are also obvious:

Advantages of investing in funds

The most important benefits of mutual funds to invest in today’s market, I think are two of the most important:

Benefit 1.

Save research and management time: If you have a lot of money and don't have time to research investments, investing in a fund is like paying to hire a professional to help manage your money.

Benefit 2.

Access to a wider range of investment targets: ordinary people have less capital and limited information, so many targets cannot be directly involved. There are many types of funds, and you can easily access stocks, bonds, raw materials, real estate, and so on in various countries. Generally, other investment methods are difficult to diversify investments like funds.

Disadvantages of Investment Funds

Disadvantages 1.

Low degree of control over investment: After all, you are handing over your money to others for management, so you will have to give up some control while you are relaxing, and your confidence will be relatively low.

Disadvantage 2.

The transaction cost is relatively high: compared to operating by yourself, the fund has additional subscription fees, manager fees, custody fees, etc.

However, these advantages and disadvantages actually vary from person to person. The suitability of any investment product will also change with age and living conditions.

For example, a boss who earns a million dollars a month may not have time to study investment, so he would rather pay a little more management fee to let people invest and save his own time.

Return on investment of the fund

Because the performance of each fund is different, and the results are also different at different time points. Generally speaking, the rate of return can only be talked about as a long-term average, and it may deviate greatly from the average in the short term.

There will be inconsistencies in performance

In fact, many funds may be at the top of the list when you buy them because their portfolio is heavy on a certain stock, but after this period of time has passed, their rate of return may be lower, so our suggestion is to find a few funds. Good funds in the first class, and then invest in them in a decentralized manner. Usually, the fund group of the first class will still be in the first class after a few years on average.

Funds have fairly high total fees

You can know that all the fees add up to about 2%~3%, that is, your investment will be reduced by 2%~3% every year, then the fund manager’s investment return rate must exceed 2% of the index so that your investment will have beat the market.

Fund prices may rise or fall. Investors will have different investment performances due to different investment times. Past performance does not represent a guarantee of future performance.

Before investing in any fund, investors should read the fund prospectus, investor instructions, and fund introduction carefully, and discuss their own investment experience, investment objectives, financial status, acceptable risks, and other relevant conditions (legal, tax, and accounting regulations). impact, etc.) prudently evaluate and independently judge whether they are suitable to participate in the investment project.