Advantages and Disadvantages of Investment Funds

For investors looking for a quick and relatively inexpensive way to diversify their portfolios, investment funds may be the key. Investment funds are a type of collective investment scheme that also go by the name of managed funds, mutual funds or funds. With investment funds, those who do not have large amounts of cash to invest directly into stocks and other securities can purchase “units” in a fund that is composed of a whole assortment of different assets. The investment fund is overseen by a fund manager whose only goal is to return a profit on the investment.

Like any type of investment, there are advantages and disadvantages associated with moving your financial resources into an investment fund.

Advantages of Investment Funds

  • Holdings diversification
  • Easy to invest in
  • Can be liquidated quickly if necessary
  • The large amount of options
  • Professional money management is part of the package
  • Choosing an investment fund is easy
  • Relatively low cost to purchase (some investment funds can be accessed for a $1000 deposit)

Disadvantages of Investment Funds

  • The fees can be costly
  • High performance or rate of return is not guaranteed
  • Not insured by the FDIC
  • You do not have the personal freedom to switch your investment as the fund manager has control over the investment instrument

It is imperative that consumers look for ways to diversify their investment portfolio as you should never put all your investments into one position.