Everything that exist in every field have its share of advantages and disadvantages , likewise Mutual Funds(like every investment) have their own share of advantages and disadvantages. Before you venture out to make your investment in Mutual Funds, it is advisable to go thorough the deep study of the pros and cons of Mutual Funds. Just like you can list a number of Mutual Funds advantages, you will find drawbacks of Mutual Funds as well if you do a market research. Some of the common drawbacks of Mutual Funds in India are listed below:
There are several shortcomings of Mutual Funds in India. Some of these Mutual drawbacks are as follows:
* No Guarantees: Every investment comes with some degree of risk. If the value of an entire stock market falls, it will directly affect the mutual fund shares as its values will also decline, irrespective of the portfolio balance. However, the risks involved in mutual funds are much lesser than buying and selling of stocks on your own. This is because when you are investing through a mutual fund you do not have this risk of money loss.
* Taxes: In a typical year, the mutual funds which are most efficiently managed have the capacity to sell anywhere from 20 – 70 % of their portfolio securities. If the money you invest in Mutual Fund earns a profit, you will be required to pay the taxes on the dividend received by you. You have to pay the taxes even if you make your money reinvest in Mutual Fund.
* Fees and Commissions: An administrative fee is required by all kinds of funds to meet the expenses. There are many funds which even charge commission on sales or “loads” to pay financial consultants, brokers, financial institutions or financial planners. If you buy stocks or shares from Load Fund, you have to pay a commission on sales irrespective of the fact that you are consulting a financial advisor or a broker.
* Risk Management: It depends on the right decision of the fund manager that you will get a satisfactory return or not. This is unlike Index Funds where there is no management risk involved because of the absence of managers.