Disadvantages of a Mutual Fund?

Here are the major disadvantages of investing in mutual funds in India. Mutual funds help you to earn a decent profit with an element of risk factor imbibed.

Mutual funds are run by mutual fund companies by investing your investments in various kinds of funds that differ in their properties. You can invest your money in equity funds where your investments are directly placed in stock market equities by selecting a diversified portfolio.

Thus, reducing the risk factor considerably in times of high market fluctuations. You can further make a balanced investment in the hybrid funds, and they are a combination of equity and debt.

An experienced fund manager can plan a fund at a fair price for you and also place it in a way that is convenient and good at controlling risk factors.

In addition, a craftful fund manager can engage your investments in advanced portfolio management, reinvestment, and dividends.

In short,

Mutual Funds are growing popular in India, and it is enabling fund managers to run professional management of investments drawn from various quarters.

Another important expenditure you shall incur is the financial costs which are unavoidable while conducting businesses, and salaries spent by fund houses for their fund managing professionals/staff.

Disadvantages of Mutual funds:

You will find high fees like operating fees, switchover fees, and entry & exit load fees.

The return on the investment is taxed and there is a possibility of improper trade execution.

Your fund may lose its credibility when the fund operating managers fall prey to management pressures.

You May Lose Money in Mutual Fund Operations:

You may not obtain your expected return on a mutual fund as the fund management levies fees that include entry load, exit load, transactional charges, & expense ratio and they can be listed as follows.

Entry Load:

Asset Management Company, AMC, levies the distribution cost for promoting the MF scheme on you.

Exit Load:

Asset Management Company, AMC, levies the exit load expenses when you want to exit the fund prematurely and it is usually 1 percent on the redemption value.

Transaction Charges:

It is the cost collected by the fund management as the transaction fee at the inception of the fund and the fee would be INR 100 to INR 150 for an investment of INR 10,000 and above.

And, for anything below INR 10,000, the transactional fee is not charged.

Expense Ratio:

It is the annual fee collected on your investment and is a percentage of the fund’s daily net assets.

The value of assets deducted from the net asset is adjusted against the marketing expenses, fund manager’s fees, distribution fees, and administration fees.