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Mutual Funds are Financial Intermediaries that pool the financial resources of individuals and corporates and invest in diversified portfolios of assets.
The first advantage of mutual fund investing it that mutual funds offer professional management of you investment dollars. Mutual funds are run by fund managers, who are essentially watching over your investment daily. There is almost no other place where you get that kind of investment management without paying huge management fees.
The second advantage of mutual fund investing is that mutual funds are extremely liquid. Any investor can sell his shares in a mutual fund any day that the stock market is open. Compare that to investing in real estate, CDs or even stocks that have low trading volume which can takes weeks to months to liquidate your stake. The liquidity of mutual funds gives any investor the ability to get out of the investment quickly if needed.
The third advantage of mutual funds is the diversification that they offer. Mutual funds invest in tens or even hundreds of different stocks, bonds or money markets. Trying to duplicate this type of diversification in your own portfolio would result in very high trading fees, not to mention huge headaches from tying to monitor hundreds of stock positions.
This leads us into the fourth advantage of mutual funds, lower fees. Mutual funds have very low fees due to their ability to take advantage of economies of scale. Since mutual funds are pooling the investment dollars of so many investors they can buy stocks in larger quantities which leads to lower fees for mutual funds investors.
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