Investing in Mutual Funds

How does an investment in a mutual fund compare to investing in individual securities?

Professional Management: The biggest advantage gained from investing in a mutual fund is access to professional money managers. Few people have the time and expertise necessary to manage their own portfolios, and a mutual fund provides an inexpensive way to access sophisticated investment management.
Diversification: By virtue of their size, mutual funds are able to invest in a large number of securities. A diverse mix of securities can reduce overall portfolio volatility since the impact of one poorly performing stock can be offset by a better-performing security. The more stocks that are held, the less one security can impact the overall result. Large mutual funds typically own many stocks in diverse industries. An individual investor would not be able to create a similarly diversified portfolio with a small amount of money.
Liquidity: A shareholder in a mutual fund can sell shares at any time without worrying about the liquidity of any given stock held in that mutual fund. Since the shares of the fund are valued at the market’s close each day, the shareholder would receive the fund’s current market value at the closing price (NAV) regardless of what time the sell order was placed during that day.
Simplicity: Most mutual funds require only a small initial investment, and shares can be easily purchased in a variety of ways including online. Mutual fund companies offer many convenient services for shareholders, including online account access, automatic investment and withdrawal programs, and reinvestment of distributions.