Pros and Cons of Mutual Funds

 

Pros and Cons Cons of Mutual Funds

Brian Zwerner is the Managing Principal at Kensington Blake Capital, LLC. Since founding the firm in 2007, Brian Zwerner has provided guidance on financial investments pertaining to equity and fixed-income assets. Mutual funds come with different levels of investment risk, depending on the type. The three main types include equity funds, fixed income funds, and money market funds. Equity funds are comprised of stocks, usually common stocks, and represent ownership of a company. Equity funds offer diversification for a small investment and allow individuals to focus their funds toward a specific sector or industry. Furthermore, it can often be purchased directly from the mutual fund itself and has a larger potential for fiscal return than fixed income funds. Bond or fixed income funds purchase securities that offer periodic, typically fixed, interest payments, with the benefit of returning the principal investment at maturity. This type of fund comes with the assurance of knowing what the payments are in advance, which reduces the concern of a fluctuating market. However, the rate of return is typically lower than on an equity fund and the fund's returns may not be able to keep up with inflation rates. Money market funds make investments in financial instruments with high liquidity with very short maturities. These funds invest in securities that mature in a year or less. Money market make purchases of U.S. Treasury bills, municipal notes, commercial paper, and certificates of deposit. Money market funds tend to be safer, but do carry some risk of default on securities held.