What are the disadvantages of regular mutual fund?
Higher Returns
The returns of any direct mutual fund are always higher than the regular version of the same mutual fund. The main reason behind this is the 'expense ratio'. The expense ratio is lower for direct plan vs regular plan as mentioned above.
Higher Returns
The returns of any direct mutual fund are always higher than the regular version of the same mutual fund. The main reason behind this is the 'expense ratio'. The expense ratio is lower for direct plan vs regular plan as mentioned above.
Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end, and back-end load charges, lack of control over investment decisions, and diluted returns.
Downside risk is a general term for the risk of a loss in an investment, as opposed to the symmetrical likelihood of a loss or gain. Some investments have an infinite amount of downside risk, while others have limited downside risk.
Benefits of Regular Mutual Funds
Financial Advisor Assistance: While investing in regular funds, financial advisors help you to identify suitable funds based on risk appetite and investment objectives. Hence, if you are a new investor needing continuous support and advice, regular funds will help you in this case.
In such cases, investors can choose from direct mutual funds, where they have full control and potentially higher returns due to lower expenses. However, if you're new to the world of investing, regular mutual funds through financial intermediaries can be a prudent choice.
All investments carry some degree of risk and can lose value if the overall market declines or, in the case of individual stocks, the company folds. Still, mutual funds are generally considered safer than stocks because they are inherently diversified, which helps mitigate the risk and volatility in your portfolio.
There are four broad types of mutual funds: Equity (stocks), fixed-income (bonds), money market funds (short-term debt), or both stocks and bonds (balanced or hybrid funds).
When you purchase shares in a mutual fund, your dollars are invested in a large number of companies all at once, and your investment risk is spread out over many stocks of many companies, not just one. With mutual funds, your potential for risk is less.
Do millionaires use mutual funds?
are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills that they keep rolling over and reinvesting. They liquidate them when they need the cash.
Money market mutual funds = lowest returns, lowest risk
They are considered one of the safest investments you can make.
Inflation is the biggest risk which eats up the returns generated by your investments in mutual funds. If your investments are not generating higher returns than the prevailing inflation rate, then you are just losing money from your investment.
- Returns Not Guaranteed. ...
- General Market Risk. ...
- Security specific risk. ...
- Liquidity risk. ...
- Inflation risk. ...
- Loan Financing Risk. ...
- Risk of Non-Compliance. ...
- Manager's Risk.
Mutual funds have pros and cons like any other investment. One selling point is that they allow you to hold a variety of assets in a single fund. They also have the potential for higher-than-average returns. However, some mutual funds have steep fees and initial buy-ins.
A mutual fund provides diversification through exposure to a multitude of stocks. The reason that owning shares in a mutual fund is recommended over owning a single stock is that an individual stock carries more risk than a mutual fund. This type of risk is known as unsystematic risk.
In regular mutual funds, the sales commission is paid to intermediaries or brokers who get business for them. The amount of commission varies between 1% to 1.25% a year. Although your monthly statement doesn't reflect this amount, the NAV or net asset value of your mutual fund units will be adjusted accordingly.
Regular mutual fund scheme: In a regular mutual fund scheme, you invest through an intermediary, such as a broker or distributor. These intermediaries provide advice, assistance with paperwork, and customer support. However, they also charge commissions and fees, affecting your returns over time.
Your investment risk profile:
Before exploring mutual funds, you must assess your investment risk profile; in other words, are you comfortable taking risks? How much risk should you take? To assess your risk profile, consider your current wealth, age, income, number of dependents, and comfort with risk.
One main attraction of direct funds is that investors will not have to pay commission. In the case of regular funds, the fund house adds your advisory charges to the expense ratio. If you are a market-savvy investor with a keen interest in finance, then direct funds can be the right choice for you.
Should I take out profit from mutual funds?
Exiting mutual funds without a prolonged investment horizon is not recommended. Typically, the rule of thumb is to remain invested for four to five years for better equity fund returns and two to three years for debt funds.
While direct stock market investments offer control and the potential for higher returns, they come with increased risk and the need for diligent research. On the other hand, mutual funds provide professional management, diversification, and convenience, making them an attractive option for many investors.
There is no guarantee you will not lose money in mutual funds. The profit and loss in mutual funds depend on the performance of stock and financial market. There is no guarantee you will not lose money in mutual funds. In fact, in certain extreme circ*mstances you could end up losing all your investments.
Mutual funds are not tax-free except for ELSS (equity-linked savings schemes or tax-saving funds) and some retirement funds. As per the Income Tax Act, under Section 80C, you can claim a deduction of up to Rs. 1.5 lakh for investments made in ELSS and can save taxes up to Rs. 46,800.
There is no better time to start investing. It is very difficult to time the markets and although the markets are due for a correction, it would not be wise to wait further. Also, when it comes to SIPs, there is not much merit in timing the markets. We would suggest you invest in different mutual fund categories.
