Advantages of Mutual Funds

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Transcript

Welcome back. Now, let's discuss the advantages and disadvantages of mutual funds. We start with the advantages. The first advantage is that the mutual funds can be afforded by very large number of people, because it requires very small amount of investment to start investing in mutual funds. So, you will be investing in the share market at a very small capital investment in India it is possible to invest in mutual funds with as low as 500 rupees. Normally a nfo is launched where you can invest in nfo with only 5000 rupees to start with.

The second advantage is that when we put our money in mutual funds, the fund managers they put the mutual our money along with the money of all other investors into a large number of securities, stocks, bonds, etc. Now This means that we are actually our money actually gets diversified into multiple number of instruments, the diversification we know is key to reducing risk. Now, the graphs that we see, it shows that when the number of instruments is around about 30 the risk is almost negligible. So, we get this advantage of diversification by investing in mutual funds. Advantage three is that mutual funds are fairly liquid, generally mutual funds can be sold whenever a person wants to sell them and the sale he can sell it at the net asset value, we will see what that asset value means later in the course and get the money transferred to his account within two to three working days as per the norms of the AMC.

Now, we will also see that there is a price for this liquidity. We will explore this later. In this course, however, we there are some mutual funds which is not liquid which we will explore later on called the closed ended mutual funds. So, it is fair to say that mutual funds are generally very liquid advantage for, like I discussed in the very beginning mutual funds are managed by professional fund managers. Now, every AMC hires these fund managers to manage the portfolio's that we invest in. Now, these fund managers they have a lot of experience in investing in the stock markets and their job is to monitor the stock markets on a minute to minute basis.

Now, for a small investor, it is very difficult to monitor the markets on a minute to minute basis in spite of the fact that there are a lot of TV channels which provide programs on the stock market or there is a lot of information available on the internet. So, the professional fund managers they have access to a lot of information and their job is to monitor the stock market and invest our money wisely in the instruments. Advantage five. Now, through mutual funds, small investors can participate in investments that may be available only to larger investors. This is like for example, small investors find it very difficult to participate in investments in foreign markets. Now, this channel of mutual funds allows them to do so.

The sixth advantage is that the ANC is normally provided a lot of services and conveniences for the investors. For example, the MCs carry out a number of research which may not be possible for small investors to conduct by themselves. The AMC passes on these research results to the investors so that they can make wise decisions based on that. Also a MCs normally allocate certain PR, personal relationship managers who advise the investors from time to time regarding what could be a good investment. So these services are provided besides in today's world. MCs normally have websites or mobile phone interfaces, using which investors can interact with the agencies and can't get their services for the mutual funds they have invested in.

The next advantage is that the mutual fund investments are regulated by the government bodies. So there is a government body which specifically looks after all the mutual fund investments and regulates the laws and procedures about how they should be conducted in the country. So the chances of fraud in a mutual fund is absolutely minimal. The last advantage that we discuss is that of transparency and ease of comparison. Now, every mutual fund house is required to provide reports to the investor regarding the performance of the mutual fund. Besides all details of the transactions that have taken place, besides this, every mutual fund is required to report the same information to the investor, this is dictated by the government.

Now, the periodicity of these reports is also fixed by the government. In India for example, every mutual fund house is expected to report on a monthly basis to the investor regarding the performance etc. Now, seeing these different reports from different mutual fund houses, it is possible to make a comparison and see where the investor would like to invest more money or where the investor would like to withdraw his money from. Besides this, the stock market in which the mutual fund is invested in expense reports to the investor on a consolidated basis. You guarding all the investments of the investor in that particular stock market. This makes it much more easier for the investor to analyze his investments.

Thank you for watching, see you in the next lecture.

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