Advantages and Disadvantages of Mutual Funds

Mutual funds can offer the advantages of diversification and professional management. But, as with other investment choices, investing in mutual funds involves risk. And fees and taxes will diminish a fund's returns.

Advantages:
· Professional Management — Professional money managers research, select, and monitor the performance of the securities the fund purchases.
· Diversification — Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails.
· Affordability — Some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both.
· Liquidity — Mutual fund investors can readily redeem their shares at the current NAV — plus any fees and charges assessed on redemption — at any time.

Disadvantages:
· Costs Despite Negative Returns — Investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive — even if the fund went on to perform poorly after they bought shares.
· Lack of Control — Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.
· Price Uncertainty — The price at which you purchase or redeem shares will typically depend on the fund's NAV. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close.

---- from http://www.sec.gov/investor/pubs/inwsmf.htm