Mutual Funds Essay Example | Topics and Well Written Essays - 1250 words

vulgar Funds - Essay ExampleMutual notes are securities that are registered with the Securities and Exchange Commission (SEC). in the main speaking, they are composed of stocks, bonds, short-term m sensationy market instruments, and other securities that function as a promoter of hedging a get hold ofst possible declines in a security or investment sector. The main understanding is that this alter approach will provide the investor an option that protects them against market fluctuations, as when one security drops in value, other will increase. A manager or board of directors oversees these funds. The board hires a fund manager and works to ensure that the mutual fund is managed in the intended interest of the shareholders. This essay examines the advantages, disadvantages, and different types of mutual funds. Advantages in that location are a great variety of advantages to investing in mutual funds. One of the most braggart(a) such aspects is the increased amount of varieg ation. In terms of portfolio theory, diversification constitutes perhaps the most overarching concept. Essentially diversification is the gathering together of diverse investment securities as a means of guarding against the failure of one particular proposition sector. While it is possible for investors to diversify their portfolio by means of a widespread purchase of stocks, such a bear upon is both extensive and also contains liquidity issues. In terms of liquidity, most brokerage firms attach a fee to private trades, such that an individual attempting to withdraw money from a portfolio of diversified stocks would be ask to pay a series of fees mutual funds entreat liquidity in terms of one direct and easily accomplished sale (Pozen, Hamacher, 2011). Another prominent advantage of mutual funds is that they croak in terms of economies of scale. Essentially the equivalent of economies of scale is volume discounts in department stores. In the condition of mutual funds, a wide variety of investment funds are collated allowing the fund manager to gain greater value per purchase (Pozen, Hamacher, 2011). Divisibility is another prominent advantage to investing in mutual funds. Divisibility push aside be understood in terms of the purchase of a wide variety of stocks. Its mention that, Smaller denominations of mutual funds provide mutual fund investors the ability to make periodic investments through monthly purchase plans while taking advantage of dollar-cost averaging (Advantages of mutual, 2009). Essentially this indicates that through a mutual fund, an individual with modest means is able to invest in a great amount more stocks than they would if they save purchased the securities on their own. This allows for considerably greater amounts of diversification. Another prominent benefit of investing in mutual funds is that they are under professional management. The obvious implications of this are that an experienced and knowledgeable professional will be overseeing the securities and investment strategy. Ultimately, the cumulative advantage of these benefits makes mutual funds an attractive option for conservative or unpracticed investors. Disadvantages While in that respect are a great variety of advantages to investing in mutual funds, there are also a number of prominent disadvantages. Even as mutual funds offer a generally conservative investment option as compared to stocks, precious metals, or derivatives, there is however a degree of risk associated. The main understanding in these regards is that even with extensive levels of diversification, macroeconomic elements frequently contribute to a large-scale market decline. In these regards, individuals that do not have the financial wealthiness or patience to out-wait market downturns might find mutual funds an unattractive option