Disadvantages of Mutual Funds
However, there are also disadvantages to being an investor in mutual funds. Here’s a more detailed look at some of those concerns.
High Expense Ratios and Sales Charges
If you’re not paying attention to mutual fund expense ratios and sales charges, they can get out of hand. Be very cautious when investing in funds with expense ratios higher than 1.20%, as they are considered to be on the higher cost end. Be wary of 12b-1 advertising fees and sales charges in general. There are several good fund companies out there that have no sales charges. Fees reduce overall investment returns.
Churning, turnover, and window dressing may happen if your manager is abusing his or her authority. This includes unnecessary trading, excessive replacement, and selling the losers prior to quarter-end to fix the books.
Like it or not, investors do not have a choice when it comes to capital gains payouts in mutual funds. Due to the turnover, redemptions, gains, and losses in security holdings throughout the year, investors typically receive distributions from the fund that are an uncontrollable tax event.
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Exam date :::: 1-2-2020
Standard ::: 3
Subject ::: Paryavarn
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