As investors, our priority will always be focus on higher profits in the shortest time. We look upon the avenues open for investment, with this goal in mind.
One worry is that the company invested may go bankrupt, with shares. With mutual funds, that chance is next to nil. All of the companies that it holds would have to go bankrupt, since they typically hold anywhere from 25-5000 companies.
By pooling a lot of shares bonds (in a bond fund) or (in a stock fund), MFs reduce the risk of investing. If one company in that sector has a bad manager, or a losing strategy, it is balanced by other companies that are performing [spin]better. Thanks to diversifications, this lowers the risk.
To directly invest in shares, one should require expertise to analyse and compare financial statements of the companies where we invest. One is essentially hiring a professional manager at an especially inexpensive price, by investing in mutual funds. It would be stupid to think that one knows more than these managers who have been around the industry for a long time and who have proper academic credentials. In fact, this not only saves our precious time but also provides the expertise.
Scope & schemes
Mutual funds operate variety of schemes-say Equity market, Debt market, Bond Market and so on. Once an investor invests in MF, he has the option of ”SWITCH” which means that he can change his risk perception periodically depending on the Economic Scenario which isn’t possible if one invests directly in Share Market. Secondly, most of them have the scheme of “SIP” that is Systematic Investment Plan whereby one can invest a fixed amount over a period of time and reap the benefits of price changes of shares over the period.
Investment in MF is as liquid as investment in stocks or better than that as some scrips can be sold only in market lots. That is no so in the case of investment in MF. Stocks can be even more difficult depending on what kinds you have invested in.
Remember, that in this time you must be fully aware of your holding costs and how time will affect your bottom line. I have seen many experienced investors ignore holding costs, or not understand all the costs associated with holding property. Because there was usually enough profit to cover these holding costs, it usually works out for them. Not to mention the fact that properties sold faster. Sometimes when investor is initially estimates the rehab costs they focus on things like the roof, furnace, carpet, etc. Holding costs are the expenses that are not associated with the expenses that are directly incurred in the rehab of a investment property. Even if the property just sat idle, holding costs are costs that are incurred.