The benefits of investing in mutual funds are numerous as it provides an easy and cost effective vehicle of investment for many small investors. these benefits include:
It’s easy for small time/unsophisticated investors
For a small time unsophisticated investor you won’t have to bother about picking and analyzing stocks. It is easy and cost effective to begin as the fund’s transaction costs, commissions and other fees are comparatively less expensive than direct investment in the capital markets.
Governed by rules of Security and Exchange Commission
Mutual funds are strictly regulated all over the world. In the U.S it is regulated by the Security and Exchange Commission (SEC). Mutual funds are required by law to regularly inform investors about their investments on areas such as investments made by the fund and the nature and proportion of asset class invested in.
Its allows for diversification
Mutual funds offer significant diversification benefits to investors in all asset categories. It is a solid investment vehicle for the investor who wants to diversify broadly without attempting to purchase individual stocks.
The diversified nature of a mutual fund reduces the risk of investing as it pools a lot of stocks (in a stock fund) or bonds (in a bond fund. Thus if one company stock in the fund does not perform well, others in the fund with good performance will compensate for it.
Mutual funds less risky than buying individual stocks because they are a diversified investment
Managed by professionals
Mutual funds are managed by experienced and skilled professional money managers who have access to vast information such as company research, financial reports, economic and business trends and developments and how they shape investments and markets.
Access to this information allows mutual fund managers make informed decisions on how best to invest your money.