Advantages of Mutual Funds

• Mutual Funds substantially lower the investment risk of small investors through diversification in which funds are spread out into various sectors, companies, securities as well as entirely different markets. It is always the objectives of a fund manager to maximize a funds return for a given level of risk, however the dangers of "over-diversification" are always prevalent which would inevitably lead to a reduced return on the portfolio.

• Mutual Funds mobilize the saving of small investors and channel them into lucrative investment opportunities. As a result, mutual funds add liquidity to the market. Moreover, given that the funds are long term investment vehicles, they reduce market volatility by offering support to scrip prices.

• Mutual Funds are provide the small investor access to the whole market which individually, would be difficult to achieve.

• The investors saves a great deal in transaction cost given that he has access to a large number of securities by purchasing a single share of mutual fund.

• The investors can pick and choose a mutual fund to match his particular needs.

Disadvantages of Mutual Funds

• Economic and Business Conditions: As the business and economic conditions do not remain constant, the mutual fund may face some difficulties in future. Specially if the manager does not shuffle the investment portfolio with the passage of time, or some other major unforeseen disaster/event changes the investment scenario.

• Portfolio Managed by Managers: Portfolio of a mutual fund is managed by the portfolio managers due to which the investors has no say in the affairs of a mutual fund.