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Home » Mutual Funds » Advantages and Disadvantages » Reasons to Buy a Mutual Fund

Top 10 Reasons to Buy a Mutual Fund


1. Mutual Funds Offer Diversification

The beauty of a mutual fund is that you can buy a mutual fund and obtain instant access to a hundreds of individual stocks or bonds. Otherwise, in order to diversify your portfolio, you might have to buy individual securities, which exposes you to more potential volatility.

2. Mutual Funds are Professionally Managed

Many investors donít have the resources or the time to buy individual stocks. Investing in individual securities, such as stocks, not only takes resources, but a considerable amount of time. By contrast, mutual fund managers and analysts wake up each morning dedicating their professional lives to researching and analyzing current and potential holdings for their mutual fund.

3. Mutual Funds Come in Many Varieties

A mutual fund comes in many types and styles. There are stock funds, bond funds, sector funds, target-date mutual funds, money market mutual funds and balanced funds. Mutual funds allow you to invest in the market whether you believe in active portfolio management (actively managed funds) or you prefer to buy a segment of the market with no interference from a manager (passive funds and index mutual funds). The availability of different types of mutual funds allows you to build a diversified portfolio at low cost and without much difficulty.

4. Mutual Funds Have Low Minimums

Many mutual fund companies allow investors to get started in a mutual fund with as little as $1,000. Schwabís mutual fund family has a minimum of $100 for many of their mutual funds.

5. Systematic Investing and Withdrawals with Mutual Funds

It is simple to invest regularly in a mutual fund. Many mutual fund companies allow investors to invest as little as $50 per month directly into a mutual fund. Money can be pulled directly from a bank account and invested directly in the mutual fund. On the other hand, money can be regularly withdrawn from a mutual fund and be deposited into a bank account. There are generally no fees for this service.

6. Mutual Funds Offer Automatic Reinvestment

An investor can easily and automatically have capital gains and dividends reinvested into their mutual fund without a sales load or extra fees.

7. Mutual Funds Offer Transparency

Mutual fund holdings are publicly available (with some delays in reporting), which ensures that investors are getting what they pay for.

8. Mutual Funds Are Liquid

If you want to sell your mutual fund, the proceeds from the sale are available the day after you sell the mutual fund.

9. Mutual Funds Have Audited Track Records

A mutual fund company must maintain performance track records for each mutual fund and have them audited for accuracy, which ensures that investors can trust the mutual fundís stated returns.

10. Safety of Investing in Mutual Funds

If a mutual fund company goes out of business, mutual fund shareholders receive an amount of cash that equals their portion of ownership in the mutual fund. Alternatively, the mutual fundís Board of Directors might elect a new investment advisor to manage the mutual fund.

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