Saturday, November 15, 2008

Drawbacks of Mutual Funds:

Inspite of all the advantage the MFs provide, there are still certain points the investor needs to keep in mind before taking the decision to invest.

· Management Risk

By investing in MFs, investors need to depend on the fund managers to make the right decisions regarding the fund's portfolio. If the manager does not perform well, then the investments may not generate as much returns as expected. Thus, investors lay at the discretion managers.

· Costs Involved

For an AMC, the main source of income is the entry and exit load which they charge from investors. Also, funds do normally change administrative fees to cover their day-to-day expenses.

· Dilution

As the funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return.


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