Reasons to invest in Mutual Funds

• One of the most important advantages of mutual fund investing is diversification. Your investment risk is greatly reduced through diversification because a mutual fun owns many stocks and/or bonds. Also, you have an option to select mutual funds by different level of risk. For example, if growth is your primary focus, you can select mutual funds with aggressive investment strategy. On the other hand, if you’re looking to establish a fixed income stream and more stability in your portfolio, you can select mutual funds investing in high-grade bonds and money market funds. Whatever is your investment goal, you can find a mutual fund to match your goal and strategy.
• Mutual funds also offer you a great advantage because they are professionally managed. Now what does that mean? Professional management means that fund is managed by group of people with lot more financial experience than an average investor. These fund managers also spend lot more time analyzing the market to figure out the best investment strategy and choices. Since most people do not have the time or skill to select and monitor individual stocks and bonds, a professionally managed mutual fund offers piece of mind and better future.
• You will earn competitive returns on your investment. Mutual funds can offer decent returns you need to reach your goals. Also, if you’re more interested in a certain index performance, for example, an index fund, (a fund that invests in securities of one of the broadly based market indexes such as Standard and Poor’s 500), you can expect to match the market’s performance, minus the expenses of running the fund. This is an assurance that no other investment can provide. This is a great investment option for people who are looking to develop a long term investment strategy but don’t really know where to start.
• You don’t need a fortune to get started. Many funds require only $1,000 to open an account, and some funds require minimum initial investments as low as $250 to $500. Subsequent deposits can be as small as $25 to $100 if an automatic investment plan (AIP) is adopted. An AIP is an arrangement where you agree to have money automatically withdrawn from your bank account on a regular basis, (e.g., once a month or every quarter) and used to purchase fund shares. If you are looking to get an Roth or traditional IRA account but don’t have $4,000 or the full year max allowed, you can pick a mutual fund and put as little as $100 a month.
• You retain ready access to your money. A mutual fund is required to buy back your shares, which makes withdrawals easy. It will mail your check within seven days of the request at the closing price (NAV) on the day it is received. (An exception to receiving NAV at sale time is back-end load funds that charge a redemption fee). You also have a better visibility about your account since you can check the NAV price online or by calling a toll free number. Also, redemption fees are disclosed to customer at the time of the invest in a mutual fund, so you always know how much it would cost you to liquidate your holdings.
• Mutual funds are a cheaper way to get the investing job done. The thousands of shareholders share research and operating costs. The most efficiently run funds have an expense ratio (the percentage of fund assets deducted for management and operating expenses) of less than 1% a year. Some well-established funds charge annual fees as low as 0.2% to 0.5%. Also, many funds are sold directly through their sponsors with no sales charge-known as “no-load” funds. Funds that charge a sales commission are called “load” funds. Earnings from mutual funds can also be automatically reinvested in additional shares. Reinvesting and compounding are keys to building wealth.
• Automatic withdrawal plans are available, making it possible to have a steady stream of income for retirement (e.g., withdrawals of $500 per month).
• Mutual funds have less risk of bankruptcy or fraud than many other securities because they are highly regulated by the federal government through the SEC, which is charged with assuring that mutual funds and investment advisors follow specific rules of disclosure. They also have better transparency because there are rating agencies that rate mutual funds based on their performance. Morningstar rates funds using a “star” system–with five stars being the highest rating and one star being the lowest rating.
•  Monitoring mutual funds is simple. Prices are reported daily in the financial section of many newspapers and more in-depth information is available in the Sunday business sections. Your account balance is also updated on a daily basis and you can monitor the performance of your investment without keeping the price history of the mutual fund you’re invested in.