Matthew Feargrieve: Mutual Funds
Updated: May 15
Welcome to the Matthew Feargrieve blog. Matthew Feargrieve is an investment funds lawyer with more than twenty years’ experience. In today’s blog we talk about when are mutual funds considered a bad investment?
It’s easy to see why mutual funds are so attractive: they’re easy to buy, they’re easy to sell and they offer instant diversification. There are a variety of funds covering different industries and different asset classes available. Some of the advantages of this kind of investment include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing. Disadvantages include high expense ratios and sales charges, management abuses, tax inefficiency, and poor trade execution.
High Annual Expense Ratios Excessive annual fees can make mutual funds unattractive investment, as investors can generate better returns by simply investing in broad market securities.
Load Charges Many mutual funds have different classes of shares that come along with front- or back-end loads, which represent charges imposed on investors at the time of buying or selling shares of a fund. Load fees can range from 2 to 4%, and they can also eat into returns generated by mutual funds, making them unattractive for investors who wish to trade their shares often.
Lack of Control Because mutual funds do all the picking and investing work, they may be inappropriate for investors who want to have complete control over their portfolios and be able to rebalance their holdings on a regular basis.
Returns Dilution Mutual funds are heavily regulated and are not allowed to hold concentrated holdings exceeding 25% of their overall portfolio. Because of this, mutual funds tend to generate diluted returns, as they cannot concentrate their portfolios on one best-performing holding.
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Matthew Feargrieve is an investment funds lawyer with more than twenty years’ experience of advising managers of investment funds operating in the leading jurisdictions of the United Kingdom, Luxembourg, Ireland and the Cayman Islands. Learn more about Matthew Feargrieve here. Alternatively, you can also follow Matthew Feargrieve on Facebook here for the latest hedge funds breaking news. You can also watch Matthew Feargrieve video here