5 Major Advantages of Mutual Funds
Mutual funds investment have several advantageous characteristics when compared to other investment items and several features that can return them attractive to certain types of investors. In fact, as their names suggest, the mutual funds provide the opportunity for all investors to pool their agent in a specific background. A small investor can therefore find this interesting opportunity. We distinguish 5 major advantages that make mutual funds an attractive choice, which we describe below. Good reading!
1- The investment diversification
Investment diversification across multiple titles is one of the undeniable advantages of mutual funds. Diversification generally reduces the volatility of the investment portfolio.
Indeed, a substance containing 10% volatile stocks with a combination of other funds and different volatility in different sectors will be generally less volatile than a portfolio containing 1 title at 100%. Thus, if the volatile title were to lose a lot of value, other titles in the common fund could potentially wipe the realized loss.
2- Management by Professional Portfolio Managers
Another advantage of investing in a mutual fund is professional management background. Indeed, the field of professional work and are studying the prospects of funding to provide the best return to investors. An individual not having much time to devote to managing its portfolios can hardly beat the performance (even after the application of the management expense ratio (MER)) of its professionals for the same securities.
In short, mutual funds allow all investors to benefit from professional management services at lower cost.
3- Liquidity of Investments
Unlike other types of funds, the mutual funds have a high liquidity. Indeed, it is generally easier and faster for investors to make transactions of purchase or sale transactions on investments. This feature comes mainly from the fact that mutual funds are popular with investors and that they are many.
4- The Flexibility of funds
The flexibility of mutual funds is mainly reflected by the large number of categories and types of mutual funds offered by various financial institutions in Canada. This flexibility allows the investor to select a background that suits him perfectly. It is understood that the investor when choosing a common fund in which to invest, is not confined to a rigid portfolio that can not undergo change.
The flexibility of mutual funds not however stop at the number of funds. It is also easy for investors to have access to different forms of income (dividends, capital gains, interest, etc.) and transfer the investments.
5- The Protection of Investors
Since mutual funds are affected by the law on securities, managements of the companies can not do operations that may endanger the health funds (combine funds, commercial use, etc).
We should also mention that the funds are audited by independent external auditors and the Canadian Investor Protection Fund (CIPF) protects investors up to a million dollar on Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF). For more information on protection by CIPF, a variety of information is available on their web domain.