What are the main advantages and disadvantages of investing in a mutual fund? 4 marks.
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Starting off we can state that the main advantages of a mutual fund are that first of all you get to own several companies no matter how much you decide to invest. In other words, you get instant diversification. You can also easily make monthly contributions as well as being able to track your funds performance just as easily as tracking a stock. We must also state that professional manager is the one managing the money. Theoretically, because of his/her experience and knowledge you should receive above average returns. Now we can move on to the disadvantages of a mutual fund, and to a large majority of mutual fund companies don’t come close to beating market averages like the S;P 500 and the DJIA. (Notice we said “theoretically” you will receive above average returns. This will be discussed in detail in future pages.) Fund managers take a slice of the profits for their work. This slice varies but can be quite high. You pay management fees no matter if the fund actually makes you money or not.
2.Describe each type of mutual fund listed below: 16 marks.
You may use the following site to help you research those funds you are not familiar with: http://globefunddb.theglobeandmail.com/gishome/plsql/gis.fund_srh.
a) Mid Cap Fund – The Mid-Cap Fund seeks to provide long-term capital appreciation by investing primarily in equity securities of mid-sized companies. It is the type of Fund you will use for your future by setting it up now. Usually this is not a quick process and I would strongly recommend it for the fact that it’s better to be on the safe side.
b) Growth Fund – This is a type of mutual fund that invests primarily in growth stocks. The goal of a growth fund is set out to invest only in the type of stocks that have capital increase as the primary initiative like a lot of the technology companies. Growth fund companies invest in ways that will reinvest their earnings for expansion, research, and development.