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Get Started...
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Drawbacks
- No Guarantees. Mutual funds are
susceptible to drops in value because of market conditions or investment decisions by the
fund manager. And just because you've paid expense fees or sales charges doesn't mean the
fund has to perform well -- many don't. Like many investments, mutual funds do
carry risks.
- Tax Consequences. Funds with high
turnover rates (lots of buying and selling) will generate additional capital gains for
investors -- this means paying more taxes. Capital gains and dividend income are passed on
to shareholders regardless of the fund's performance.
- Size of the Fund. The larger the
fund, the less flexibility a fund manager will have moving in and out of the market. A
great performance by one stock held in a large fund will only put a dent in the fund's
total performance.
- Too Many Choices. Finding the
right fund can be a daunting task for any investor. There are thousands of funds to choose
from and compare -- a time consuming effort.
- Management. Frequent changes in
fund management can wreak havoc on a fund's performance. It's possible your fund manager
might retire early or leave for another opportunity.
- No control. Investment decisions
are made by a fund manager, not you. You have to accept this hard fact before investing in
mutual funds.
Next: Risk vs Reward
Mutual Fund Calculators:
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• How do growth and income
funds compare?
• Which is better: a front
or back load?
• Which is better: load or
no load?
• How much do fees affect my
return?
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