Advantages:

Diversification:

       Using mutual funds can help an investor diversify their portfolio with a minimum investment. When investing in a single fund, an investor is actually investing in numerous securities. Spreading your investment across a range of securities can help to reduce risk. A stock mutual fund, for example, invests in many stocks - hundreds or even thousands. This minimizes the risk attributed to a concentrated position. If a few securities in the mutual fund lose value or become worthless, the loss maybe offset by other securities that appreciate in value.

Professional Management:

       Mutual funds are managed and supervised by investment professionals.  As per the stated objectives set forth in the prospectus, along with prevailing market conditions and other factors, the mutual fund manager will decide when to buy or sell securities.  This eliminates the investor of the difficult task of trying to time the market.

Convenience:

       With most mutual funds, buying and selling shares, changing distribution options, and obtaining information can be accomplished conveniently by telephone, by mail, or online.

Minimum Initial Investment:

     Most funds have a minimum initial purchase of $2,500 but some are as low as $1,000.  If you purchase a mutual fund in an IRA, the minimum initial purchase requirement tends to be lower.  You can buy some funds for as little as $50 per month if you agree to dollar-cost average, or invest a certain dollar amount each month or quarter.

Disadvantages:

1. No Control: By definition, mutual funds are a collection of investment vehicles, such as stocks, bonds and securities. They are run by a group of fund managers who make decisions about the pooled assets. While many investors like to turn things over to knowledgeable experts, others may not like to relinquish so much control over fund management.

2. Risk: Every investment vehicle carries with it some risk, although some are more risky than others. Mutual funds are not guaranteed like a bank deposit is, and the value of the mutual funds could possibly go lower than what you initially invested in it. Mutual funds are subject to market fluctuations as well, unlike CDs.

3. Costs: There are always costs associated with the management and operation of a mutual fund, and the cost may exceed the fees for other types of investments. You'll have to pay these costs and fees even if the fund has negative returns. However, you can skip the middleman and save on some fees by investing in a no-load mutual fund.

4. Too Diverse: Mutual funds are diverse enough that any single drop in any market can be offset by the other more stable investments. However, if a section of the market skyrockets, those in a mutual fund won't be able to jump in and take advantage of any single dramatic value increase.

5. Slow Trades: To buy or sell a mutual fund, it takes some time for the transaction to take place. Unlike other forms of investments, such as an individual stock or an ETF, mutual fund transactions occur at the close of the market that day.

6. Capital Gains When capital gains are realized, sometimes they can be large and unexpected. This can force investors to pay taxes they had not planned for.

These disadvantages shouldn't make you afraid of mutual funds. All investments carry risk, and that includes mutual funds. Knowing these potential problems can help you sort through the many mutual fund options that are available.
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