The Mutual Fund concept is based upon the “rationalistic ” choice of investment portfolio. Minimization of risks, maximization of yield and liquidity are the objectives of investment. Individual investors have to make strenuous efforts to achieve a rational choice of securities for minimizing risks and maximizing yield.
The task becomes difficult for the individual investors who are not so well informed, whereas a Mutual Fund possesses the resources and expertise to make the right choice for him.
The individual investors may have problems of dealing with a large number of companies, and making the right choice of securities for overall portfolio whereas, by investing in Mutual Funds, he gets the benefit of maximum return, minimum risk and capital appreciation thus, benefiting from the choices of portfolio made by the Mutual Fund intermediary.
Further in the present day world, the fortunes of many companies are fast changing due to globalisation of market, changes in technology, changing consumer preferences, government economic and political policies, etc. These affect the company’s value, sales, profit and public perception of the companies.
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An immediate reaction to these changes is reflected in the value of shares. Hence, the value of investors money. A Mutual Fund by constantly shuffling its portfolio of investments according to market perception is in a position to manage the funds better.
Again the retail investors may not be in a position to own high value stock due to their limited resources. Thousands of such investors going through Mutual Funds will be able to have a stake even in such stocks.