Investment companies offer three main advantages to investors:

  • liquidity
  • diversification
  • professional management

Liquidity
Mutual funds can be sold on any given business day. Investors can convert their shares into cash within a short period of time, in a week or less, and at a reasonable price. They can sell shares in person, online or by phone within seconds. This ease of conversion from a non-cash asset into cash makes mutual funds a highly liquid investment. Liquidity refers to the quality of an investment's asset-to-cash transfer.


Diversification
Reduces the risk associated with owning too much of the same thing, or "putting all your eggs in one basket". A mutual fund is a convenient way for investors to spread out their risk among different investments. The mutual fund pools money from many sources to purchase interests in hundreds of companies, and thus allows investors who would otherwise be unable to adequately diversify their holdings to do so with a limited amount of assets.

Professional Management
This is one of the major advantages of mutual funds, especially for inexperienced or time-strapped investors who nevertheless need a way to fund their retirement or save for college tuition and expenses. Moreover, for very little money, the average investor is able to secure the professional money management services of an experienced financial consultant.

Other Services
In addition to these three benefits, mutual fund companies also offer several types of services that make investment management a lot easier for the client:

  • For one, investors receive regular statements, summaries and reports showing cost basis, gains or losses, contribution amounts and year-end tax information.
  • Investors can also arrange to have regular contributions systematically invested, dividends and capital gains reinvested, or funds automatically withdrawn.
  • Investors also retain their voting rights, which are like those enjoyed by common stockholders: they can vote for changes to the board of directors, approve or reject an investment advisor, decide for or against changes to a fund's investment objectives, or vote on sales charge modifications.


Types of Funds

Related Articles
  1. Financial Advisor

    A Mutual Funds Guide for Young Investors

    Learn how mutual funds work, why they are so popular and how younger investors can get started by putting mutual funds in their IRAs or 401(k)s.
  2. Financial Advisor

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  3. Investing

    The Advantages Of Mutual Funds

    Learn how to get diversification, liquidity and professional management at an affordable price.
  4. Investing

    The Benefits of Picking Mutual Funds Over Individual Stocks

    Learn about the advantages of investing in mutual funds rather than individual stocks, including the benefits of affordability, oversight and diversification.
  5. Investing

    The Advantages Of Mutual Funds

    Diversification, or the mixing of investments within a portfolio to manage risk, is one of the many advantages to investing in mutual funds.
  6. Investing

    What You Need to Know About Mutual Funds

    Mutual funds are a good investment opportunity, but investors should know how they operate.
  7. Financial Advisor

    5 Secrets You Didn’t Know About Mutual Funds

    Learn five of the "secrets" about mutual funds that can have a significant impact on mutual fund choices and investor profitability.
  8. Investing

    Mutual Funds Are Awesome - Except When They're Not

    This investment is very popular, but that doesn't mean it comes without risk.
  9. Investing

    4 Mistakes to Avoid When Choosing Mutual Funds to Invest in

    Mutual funds are a great way to build wealth but not all of them are the same. Investors have to be mindful of fees, turnover, redundancy and performance.
Frequently Asked Questions
  1. Where else can I save for retirement after I max out my Roth IRA?

    The first option to explore is to determine if you can contribute to a 401(k), 403(b), or 457 plan at work. If your employer ...
  2. How did George Soros "break the Bank of England"?

    In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually ...
  3. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ...
  4. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
Trading Center