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MUTUAL FUNDS IN INDIA
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Mutual Funds - General Info
Concept of Mutual Funds   |   Mutual Funds Industry   |   Performance of Mutual Funds in India   |   Mutual Fund Companies in India   |   Future of Mutual Funds in India   |   Types of Mutual Funds Schemes   |   Organisation of Mutual Funds in India   |   Association of Mutual Funds in India (Amfi)   |   Advantages of Mutual Funds   |   Drawbacks of Mutual Funds   |   Frequently Used Terms

Drawbacks of Mutual Funds


Mutual funds have their drawbacks and may not be for everyone:

  • No Guarantees: No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money.

  • Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund.

  • Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.

  • Management risk: When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.




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