AMFI exams Tips series -4

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In this series we will be discussing more on Advantages of Mutual Funds under which will be covering following topics

Benefits of Mutual Funds for Investors
How Mutual Fund Groups Make Money
How Mutual Fund Shareholders Make Money
Savings vs. Investments

There are three major advantages to investing in mutual funds.

· professional management
· diversification
· liquidity

The investments made on behalf of mutual fund shareholders are determined by the portfolio manager, who is advised by a staff of research analysts. Together they perform various tasks including:

· monitoring market trends
· following industry news
· analyzing company financial reportsspeaking with industry experts.

Diversification
Diversification is the practice of spreading investment dollars over many different investments, to protect against adverse effects of poor performance in any one holding.

Mutual funds typically allocate their assets into dozens (and in some cases hundreds) of different stocks and bonds, thereby achieving a diversified portfolio.

How mutual funds provide liquidity
Redeeming or “liquidating” shares can be done in a variety of ways, as listed in each fund’s prospectus. Some of these ways are:

· through a broker-dealer
· by phone
· by mail
· by writing checks
· through automatic monthly withdrawals
· using Internet-based systems.

More details can be found in the chapter 2 enclosed in the link given below….
Mutual funds also offer the following benefits:

Benefits

Accessibility : It is easy to obtain information on Mutual Funds in the financial section of most newspapers, or on the internet.
Affordability: Investors of modest means have access to the same investment opportunities as wealthy investors do.

Availability: Mutual funds can easily be purchased through brokers or directly from a fund’s Transfer Agent.

Detailed recordkeeping: Mutual funds send shareholders confirmations of transactions, semi-annual fund performance reports, periodic statements of holdings, cost basis statements, and annual tax statements.

Flexibility: Through various exchange programs, shareholders can often move their assets between funds within a FUND Family.

Regulation: Mutual funds are regulated under federal laws and state statutes.

Specialization: Mutual funds sometimes specialize in particular industries or states, allowing investors to concentrate their assets in a particular area.

Variety of risk:With over 6,000 funds available, the entire spectrum of investments from (almost) entirely safe to extremely risky (speculative) is available.

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