In his book “Mutual Funds: Taking the worry out of investing”, Joel Ross mentions that the primary reasons for the rise of mutual fund are that interest rates on the Certified deposits (CDs) and Savings Account has gone down. Fall of dollars and rise in inflation are other two reasons for the rise in popularity in mutual funds. In the title of his book he rightly mentions that all the above mentioned three factors help the common people invest in Mutual fund with less worry. In fact investing in Mutual Funds are the only safe way to counter against rising inflation because one can escape the results of inflation by investing in Mutual Funds. No doubt there has been explosive growth in mutual funds in recent times for all the good reasons but what are mutual funds in the first place and why is this so popular? Is Mutual Funds have some loop holes and at risk in current economy? Let us try to find answers to some of these questions.

    A mutual fund is a corporation, trust or partnership that combines the assets of all of its shareholders or partners into one common investment account for the purpose of providing diversification and professional management. This pooling together helps the investors gain certain benefits which is otherwise not available in other common stocks. For example mutual funds indirectly offer a portfolio to the investors which of wide variety of financial instruments like stocks, bonds and other financial instruments usually not possible for common person to invest in. The managers of these mutual funds suppose to be expert in the area so the funds are managed properly. There are services usually not available to common people could be made available by the managers via the mutual funds. Of course diversification helps lowering the risk. The prospectus of the mutual funds are the official document filed with Securities and Exchange commission which is made available to public to decide whether the mutual fund fits their objectives or not.

    So what are the advantages of investing in mutual funds? The top most reason is convenience. For example you do not require large some of money to get started and as little as 100 dollars can help you get started. And you can choose to add to this as frequently as you want. Second is flexibility, the investors can switch from one fund to another among family of funds. All you will need to do this is a telephone call. Mutual Funds offers to you great deal of diversification in as little money which is practically impossible to do that outside through other stocks. This diversification is achieved through a portfolio of several stocks and you can minimize the risk. These funds give you freedom from responsibility as managers are busy managing the funds once you chose your diversification. In most cases your fund balance is available immediately so gives  liquidity of funds  are available almost immediately. Also you can borrow against mutual funds so you are not forced to sell the funds at a loss when the market is down like now a days. But the most important benefit of mutual fund is the professional management of your fund which you achieve at no cost and you get that almost immediately. This in a way not gives you benefit of getting the benefits of expertise of the leaders in the market but also helps you save time which you might have to invest in researching about the funds. The best part is the result of these funds (or many of them) is very satisfactory.

    But this explosive growth of mutual funds have also attracted poor fund managers who are the key to success of these funds, which could ultimate lower the reputation of the mutual funds. Also due to numerous mutual funds available in the market it is difficult to choose which one is the best. Also if a mutual fund is putting half of our money is zero coupon binds to minimize the risk we can do that too and invest other half of the investment elsewhere. We can not invest in mutual funds simply because they were some of the best performers in the list this year because the same could worst next year based upon their investments. Also the tax advantages on the capital gains were eliminated by the “simplified” Tax Reform Act of 1986.