Making new investment requires thorough knowledge of investment opportunities. It would not be so easy to make such investigation. It would become so easy if one could simply invest into a single fund, and have your money diversified into several good investments. This is possible by making investments in mutual funds. Investors simply invest in mutual funds and their funds are diversified into different investment opportunities.

Mutual funds are also called “open-ended” funds because mutual funds sell shares to public and when you want your money back, mutual fund will redeem your money. Investment in mutual funds is a way to diversify funds into multiple stocks and bonds chosen by investment professionals. So by making single investment you can reap the benefits of having several smaller investments.

Each investor in mutual fund is considered to be owner of shares and stock in which his funds are invested. He has voting right, privileges against his investment. As mutual funds are called open-ended funds, investors can buy and sell their stock at any time by paying brokerage.

Benefits of investing in mutual funds:-

- Mutual funds invest funds in different investment opportunities on basis of their professional skill. So automatically single investor can gain the advantage of investing the funds in different profitable opportunities.
- Mutual funds open the opportunities to investors to participate in any investment option all over the world.
- As the mutual fund invests in a variety of equities, bonds and other holdings, investors can make portfolios according to minimum risk and maximum return. Each investor bears the diversified risk and earns diversified return.
- By making investment in different options risk of investor reduced to minimum. Investor can make investment portfolio comparing risk and return of different portfolios.
- Mutual funds investments are liquid investments. You can buy the stock at any time and sell the stock on basis of net present value.

Disadvantages of investing in mutual funds:-

- Mutual funds provide fluctuating return on your investment because there is always a possibility that value of mutual fund will depreciate.
- Another disadvantage of investing in mutual funds is over diversification. Sometimes due to over diversification investors don’t get reduced risk.
- Investors have to pay different fee i.e. shareholders fee, annual fund operating fee etc.
- Sometimes investors suffer loss due to misleading advertisement.
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