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to have regular contributions systematically invested, dividends and capital gains reinvested, or funds automatically withdrawn.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. Investing

    The Advantages Of Mutual Funds

    Learn how to get diversification, liquidity and professional management at an affordable price.
  2. 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.
  3. 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.
  4. 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.
  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. Investing

    Mutual Funds Are Awesome - Except When They're Not

    This investment is very popular, but that doesn't mean it comes without risk.
Frequently Asked Questions
  1. Can I fund a Traditional IRA, a 403(b) or a Roth IRA using pension money?

    Can pension money be used to fund other retirement accounts?
  2. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ...
  3. How does a company move from an OTC market to a major exchange?

    The over-the-counter market is not an actual exchange like the NYSE or Nasdaq. Instead, it is a network of companies that ...
  4. Can I roll a traditional IRA into a 529 college account for my grandchild?

    The short answer: Not without paying taxes. But as with much of the tax code, there are various nuisances and exemptions ...
Trading Center