One major challenge faced by any individual who is interested in investing is deciding among the myriad of investment options available.

The options available to a potential investor include shares, bonds, money market securities, real estate investments and a portfolio of various combinations of these securities. All these securities have their own set of advantages and challenges.

Mutual funds, as an investment option, have become increasingly popular since their creation but the question is “why should you, a potential investor, give mutual funds special consideration over other securities?” To help you decide whether mutual funds are best for you and your situation, we are going to first look at what mutual funds are and then look at some reasons mutual funds are worth your consideration.

What Are Mutual Funds?

One major challenge faced by any individual who is interested in investing is deciding among the myriad of investment options available. The options available to a potential investor include shares, bonds, money market securities, real estate investments and a portfolio of various combinations of these securities. All these securities have their own set of advantages and challenges.

Mutual funds, as an investment option, have become increasingly popular since their creation but the question is “why should you, a potential investor, give mutual funds special consideration over other securities?” To help you decide whether mutual funds are best for you and your situation, we are going to first look at what mutual funds are and then look at some reasons mutual funds are worth your consideration.

What Are Mutual Funds?

Benefits of mutual funds

Mutual funds provide unique advantages for you as an investor. The first advantage of mutual funds is the broad diversification it offers to investors. Diversification in simple terms means “not keeping all your eggs in one basket”. Diversification reduces and can even eliminate specific risk associated with the ownership of few individual shares. Mutual funds employ diversification in a portfolio to reduce risk. For example equity funds will acquire the shares of selected companies from different industries within their portfolio. This diversification virtually eliminates company and industry-specific risk associated with owning individual shares. Mutual funds provide investors with diversification within portfolios and further provides diversification among portfolios. For example, with a GH₵ 1,000 you could invest half in a diversified equity fund and the second half in a diversified fixed income fund. Mutual funds provide benefit of diversification and asset allocation without the large amounts of cash that will be needed if you were to create a well-diversified portfolio by yourself.

One more benefit of mutual fund is professional management. Buying shares in a mutual fund comes with a professional money manager with the technical know-how to invest your funds. As an individual investor, you do not need to perform detailed research and analysis on securities when you can simply buy shares of a mutual fund. Mutual funds also makes it possible for individuals to own broadly diversified portfolios of professionally managed assets with a minimal initial investment and cost. These services offered by professional money managers are covered by the annual management fees paid to the fund companies.

Another benefit mutual funds offer is liquidity. Shareholders are at liberty to trade their holdings with the fund manager at the close of a trading day based on the closing net asset value of the fund’s holdings. This especially applies to open-end funds. For holders of other securities however, the purchase or sale of the security depends on demand and supply as a result there may not be a buyer/seller for that instrument every day, making such investments less liquid.



Finally, mutual funds are also beneficial to the investor because of its simplicity, convenience and reduced cost of owning shares in a mutual fund. An investor can achieve desired level of diversification by simply buying shares in a mutual fund and avoid numerous commission charges.

Conclusion

Investing in mutual funds provides a total solution for your investing needs, whether you have a small amount or huge sums to invest. There are currently mutual funds offerings that cover all of the major asset classes and investing styles in almost all financial markets in the world. As with any investment there are some risks involved in buying mutual funds. For example, market risk of price volatility is something even a broadly diversified portfolio cannot eliminate.





ABOUT OMEGA CAPITAL

Omega Capital Limited is an Investment management, private equity and investment advisory firm. The Company is authorized and regulated by the Securities and Exchange Commission of Ghana.

Contact Us

Analysts:

Nana Kumapremereh Nketiah (JP)

Nana Effah Sarpong