Investing in a mutual fund is a very attractive proposition to small investors as they offer different benefits and services to small

investors such as professional investment management, diversification, and liquidity, tax-efficiency, etc. Details of the benefits are given below:
Professional Management - Mutual funds are managed by professionals who decide what

to buy or sell, and when. Unlike individual investors fund managers decisions are guided by extensive investment research and analysis. Generally, individual investors often lack of such expertise and cannot devote similar time and attention to their portfolio. By investing in mutual funds investors just leave the investment decisions to mutual fund managers and they only required to monitor the performance of the fund at regular intervals. Diversification can substantially reduce the variability of returns without an equivalent reduction in expected returns Diversification Undoubtly diversification is the most lucrative advantageous feature of

Mutual Fund investment. Diversification, an investing strategy, neatly summed up as "don't put all your eggs in one basket", is the fruit of portfolio concept where a loss in any particular security is minimized by gains in others. This strategy essentially shifts away the unsystematic risk* of investment by investing in number of securities of various classes and sectors. The Figure----- shows how unsystematic risk abates with the increase in number of securities. Diversification can substantially reduce the variability of returns without an equivalent reduction in expected returns thus minimizing the total risk of the portfolio. Typically, the pool of funds collected in a mutual fund scheme is not invested in some stipulated securities rather fund managers go for portfolio construction by allocating fund among different stocks of diverse industries and thus try to ensure diversification where an investor can get access just by purchasing shares or units of the total fund with minimal denomination.

Figure -------: The figure shows that the systematic risk(diversifiable risk) vanishes away as the number of securities goes high. The more the securities the lower the total risk (diversifiable and nodiversifiable) of the portfolio. The figure has an embedded condition which is that securities should come from diverse sectors leading to (-1) correlation among them and resulting to complete diversified portfolio, which belongs to unsystematic risk (non-diversifiable) only.

Therefore, Mutual Funds helps to diversify investors portfolio & minimize the total risk, which otherwise wouldn't be possible for an investor to assemble on an individual basis with a small amount of funds. Thus, investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds with lack of fund and expertise as explained earlier. Economies of Scale Pool of fund, large portfolio, bulk buying and selling, result competitive advantage for mutual funds in terms of commissions and fees, which results in lower costs to the investors. Liquidity- Investment in mutual funds is generally fairly liquid. Investors can easily close their position in mutual fund to convert the investment into cash. Open end investors can redeem the investment for cash by depositing shares to the mutual fund company. Closed-end unit holder can easily close their position by selling the shares into

secondary market at the prevailing market price. Some mutual funds have specific maturity period at the end of which shareholders receives NAV for the number of outstanding shares. Convenience-Through the mutual fund investment investors enjoys the specialized service of asset In India Mutual funds also offer specialized schemes like retirement plan, childrens plan, industry specific schemes, etc. to suit personal preference of investors. Investing in a Mutual Fund reduces paperwork and helps investors avoid many problems such as bad deliveries, delayed payments and that is dealing with their brokerage or depository for the maintenance portfolio. Return Potential- Mutual fund investment follow the diversification principle, which we know decreases the total risk of the portfolio without essentially decreasing the expected return. Rather this strategy helps to offset the bad return of a security by the opposite condition of another security of different sector. Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Cost effectiveness-Mutual Fund stands as a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. A small investor will find that a mutual

fund route is a cost effective method. AMC fee is normally 2.5% and they also save a lot of transaction costs as they get concession from brokerages. Also, they get the service of a financial professional for a very minimal amount of fee. Literally, Mutual fund works as a financial intermediary thereby plays an important role to reduce the transaction cost for the investors. Transparency-Mutual funds offer daily NAVs of schemes, which help investors to monitor their investments on a regular basis. They also send quarterly newsletters, which give details of the portfolio, performance of schemes against various benchmarks, etc. The investor gets regular information on the value of his investment in addition to disclosure on the specific investments made by the fund, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

Affordability- For mutual fund investment, pool of funds comes in to the form of individual share with little denomination. In Bangladesh the denomination of mutual fund is tk.10 where the lot size ranges from 50-1000. In a word, for the investors with meager capital mutual fund stands as a gateway to the diversified portfolio which is possible with large amount of fund only. Benefit of preferential allotment: Mutual funds can get a firm preferential allotment, even though it may be at a higher price, out the public issues of companies. So, individual Investors can participate in the private placement of IPO or seasoned offering by investing in Mutual Fund.

Disadvantages of Mutual Funds:

Besides the features discussed so long mutual funds also have features that some investors might view as disadvantages, such as: Cost of Mutual Fund: The major disadvantage of investing in a mutual fund is that investors have to, in effect; bear the expenses of running the mutual fund. Creating, distributing, and running a mutual fund is an expensive proposition which investors are bound to bear regardless the fund performance. Everything from the managers salary to the investors statements costs money. Those expenses are passed on to the investors. Since fees vary widely from fund to fund, failing to pay attention to the fees can have negative long-term consequences. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject.

Do Really the Professional Managers Pay out!-

When you invest in a mutual fund you place your money in the hands of a professional manager with the hope that fund managers will generate better return in comparison to market; essentially the return on your investment depends heavily on that manager's skill

and judgment. Many investors debate whether or not the professionals are any better than you or I at picking stocks. Research has shown that few portfolio managers are able to out-perform the market which actually raise the doubt- Do Really the Professional Managers Pay out! Dilution Dilution results from too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often confronts trouble finding a good investment for all the new money. Lack of Control Mutual Fund investors typically cannot ascertain the exact make-up of

a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.