Which of the following is not an advantage of mutual funds?
Only Fixed return is not guaranteed in case of Mutual Funds. Rest all are advantages of Mutual Funds.
Mutual funds come with many advantages, such as advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing. Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
The disadvantages associated with investing in mutual funds are generally operating expenses, marketing, distribution charges, and loads. Loads are fees paid when investors purchase or sell the shares.
- High fees. Mutual funds have expenses, typically ranging between 0.50% to 1%, which pay for management and other costs to operate the fund. ...
- Market risk. Just as with stocks and bonds, mutual funds generally have market risk, meaning that prices can fluctuate up and down. ...
- Manager risk. ...
- Tax inefficiency.
- Fluctuating returns. Mutual funds do not offer fixed guaranteed returns in that you should always be prepared for any eventuality including depreciation in the value of your mutual fund. ...
- No Control. ...
- Diversification. ...
- Fund Evaluation. ...
- Past performance. ...
- Costs. ...
- CAGR. ...
- Fund managers.
Investing in mutual funds offers several benefits such as professional management, diversification, liquidity, low cost, tax benefits, affordability, safety, and transparency. Can you lose money in mutual funds? Yes, mutual funds are subject to market risks and hence there could be a possible loss of principal.
Hence, the correct answer is 'Depository'.
The Bottom Line
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. Your financial situation and investment style will determine if they're right for you.
Expert-Verified Answer
The statement is not true about mutual funds is they do not offer diversification.
- Diversification. Mutual funds give you an efficient way to diversify your portfolio, without having to select individual stocks or bonds. ...
- Low cost. ...
- Convenience. ...
- Professional management.
What is a bad mutual fund?
When are Mutual Funds Considered a Bad Investment? There are times when a mutual fund may not be a good approach for you as an investor. Usually, this is when the management fee is high. High annual expense ratio, high load charges or high fees paid when an investor buys or sells shares are not good signs.
All funds carry some level of risk. With mutual funds, you may lose some or all of the money you invest because the securities held by a fund can go down in value. Dividends or interest payments may also change as market conditions change.
One of the key benefits of mutual funds is the diversification they offer. Instead of putting all your money into one or two stocks or bonds, mutual funds invest in a broad range of assets. This diversification can help reduce the risk of losing money if a particular sector or company performs poorly.
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.
Money market mutual funds = lowest returns, lowest risk
They are considered one of the safest investments you can make. Money market funds are used by investors who want to protect their retirement savings but still earn some interest — often between 1% and 3% a year. (Learn more about money market funds.)
Mutual funds are indeed profitable. However, choosing the right fund and investing over the long term is essential. You can use a mutual fund calculator to help you choose the right fund and to track your progress over time. Mutual fund profitability depends on fund management, market conditions, and the like.
Investing in stocks offers the potential for substantial returns, income through dividends and portfolio diversification. However, it also comes with risks, including market volatility, tax bills as well as the need for time and expertise.
Disadvantages. There are fees involved when investing in a managed fund, as you are hiring the service of the fund manager to produce returns on your investment. The amount of fees can vary greatly and can have a significant impact on your overall returns.
What is the main advantage of a mutual fund? They give small investors access to professionally managed, diversified portfolios of stocks, bonds, and other securities.
There are several types of mutual funds available for investment, though most mutual funds fall into one of four main categories which include stock funds, money market funds, bond funds, and target-date funds.
How do mutual funds work?
Mutual funds let you pool your money with other investors to "mutually" buy stocks, bonds, and other investments. They're run by professional money managers who decide which securities to buy (stocks, bonds, etc.) and when to sell them. You get exposure to all the investments in the fund and any income they generate.
Mutual funds make money by charging investors a percentage of assets under management and may also charge a sales commission (load) upon fund purchase or redemption. Fund fees, called the expense ratio, can range from close to 0% to more than 2% depending on the fund's operating costs and investment style.
For many investors, it can make sense to use mutual funds for a long-term retirement portfolio, where diversification and reduced risk are important. For those hoping to capture value and potential growth, individual stocks offer a way to boost returns, as long as they can emotionally handle the ups and downs.
| ETFs | Mutual Funds | |
|---|---|---|
| Pricing | Determined by market | Net asset value (NAV) |
| Tax Efficiency | Usually tax efficient due to less turnover and fewer capital gains | Not as tax efficient due to more turnover and greater capital gains |
| Automatic Investing | Not available | Yes, for investments and withdrawals |
- Advantages: Safety and low risk, thanks to backing of U.S. government.
- Disadvantages: Limited growth potential and prices will fall if rates rise.
