These Are Not Actually the Disadvantages of Mutual Funds!
You might have read many articles which discuss the merits and demerits of mutual funds, and you find them correct too. But still, there are some points which you might have misconstrued. Near to all of the investors (maybe including you) think that the points mentioned in this write-up are the disadvantages of mutual funds. But, if you read this blog until the end, you will know that they are not actually the disadvantages.
Let’s take a round-up to know so-called disadvantages of mutual funds:
- Mutual Funds Have Hidden Fees: Possibly, most of us know that mutual fund charges a certain amount of money on the invested capital as a fee to take on the operations. Moreover, the so-called hidden fees that are lamented are completely described in the 12B-1. So, it’s no more hidden, and you cannot say it so. It is totally transparent that mutual fund managers or the managing company charge a little amount of money against the service they provide, and it merely ranges from 0.25 - 1 %, and accumulated together in the expenses. So, what do you think now? Are these fees a disadvantage of mutual funds? Of course not, as it is unfavorable to not paying anyone for the service they provide. However, there are a number of schemes that do not even charge 12B-1 fees.
- Mutual Funds Are Not Liquid: There is a great misconception among most of the investors that money in mutual funds get locked-in and takes long-term to revert along with healthy results. In actuality, there are specific funds which are fully liquid and they hold the name also as liquid funds. Moreover, mutual funds, in general, are among the most liquid investment vehicles. How fast do you think you’ll get your money, if you sell your mutual fund as compared to others such as Stocks, ETFs, or any closed-ended funds? Let us tell you that you can get your money in cash the day after the sale, but you may require waiting 3-4 days in case of the other instruments. Therefore, this so-called disadvantage of the mutual fund is also a misconception of the most investors.
- Sale Charges of Mutual Funds: Sale charges are in no manner justified to be in the list of disadvantages of mutual funds. What do you think? However, there is a charge regarding exit-load, which applies to the sale or redemption of mutual funds before a defined period of time which is normally 365 days in case of equity funds. It is not a big fat deal, as most investors invest in those funds for their long-term goals only. However, for those who want to invest for short-term duration, the categories like debt and liquid funds can be suitable. There are many categories of schemes which provide solutions to different investment needs. Thus, it also doesn’t come on the list of actual disadvantages of mutual funds for us.
- Mutual Fund Investments Lack of Personal Management: When we invest in mutual fund, we do not get direct access to the one who is making the investment decisions. The truth is that mutual funds are managed and controlled by the fund managers. It also gives birth to doubt in some of the folks that they could not get direct control over their investments. Of course, it is not any disadvantage in a sense, but those folks have mistakenly marked this point as among the disadvantages of mutual funds. In reality, the expert fund managers and the professionals help you to keep better control over the investment practices of the fund in which you invest. So, how it can be a disadvantage?
What do you think now? Do you still count them in disadvantages of mutual funds? Maybe they’re not. But, in no sense, it means that mutual funds are completely free from disadvantages. A very basic concept that we learn in our school is “where there is a merit; there will be demerit too.” So, mutual funds are also not entirely free from this excitement. You may also face some of them while investing in them. There are no investment vehicles which are free from having cons. But, among all, mutual fund is considered to be the superior if you average down all benefits and demerits comparing to that of the other avenues.
Not only the four so-called disadvantages are taken wrongly by most of the investors, but also there are other points which have been misunderstood by them. To know such informative facts about mutual fund investments and related topics of the financial world, stay with us as our regular reader and keep enhancing your knowledge. We, at MySIPonline, will keep you updated with all the necessary information about mutual funds in India.
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