Disadvantages of Mutual Funds

In our previous article, we have seen advantages of investing through Mutual Funds. Now we will see what are disadvantages of Mutual Funds.

1. Cost :

Asset Management Companies, charge small amount of fees to manage funds. They charge fees as per expense ratio fixed. 

2. Lock in period :

Some funds may have lock in period. That means you can not redeem your investment till the expiry of period.

3. Diversification :

Mutual Funds provide benefit of diversification, which is very beneficial to reduce loss. But this also results in lesser profit.

4. Market linked : 

Equity Mutual Funds are subject to market risk. That mean returns are linked to performance of Stock Market.

You may suffer losses, if market crashed at the time of withdrawal.

5. Absence of control :

Only Fund manager can decide which stocks should be in one specific Fund. You can not choose stocks in the portfolio of your fund. Its totally depend on skill and expertise of Fund Manager.

6. Very difficult to choose fund :

Average investor find it difficult to choose Fund from large variety of Funds of different different AMCs. Normally people tend to choose Fund according to the past performance. But past performance does not guarantees future returns. There are few technical terms also, which needs to study before investing, like Sharpe Ratio, Beta etc. Average Investors are not aware of this things.

7. Longer time to get returns :

In Equity Mutual funds it is suggested to remain invested for longer period of time. Wrong selection of fund at wrong time may keep you waiting for longer period of time for profit. 

This are few disadvantages of Mutual Funds. Because of this most of the people still avoid Mutual Funds, in this low interest rate regime also.