3a - Mutual funds are a non-depository institution that has...

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Unformatted text preview: Mutual funds are a non-depository institution that has 3 distinct advantages for investors over the purchase of stocks. First they allow the investor to diversify their portfolio without a large investment. Through a pool of investors purchasing multiple stocks, the risk is spread over multiple investments with the hopes that a few or less might not do well while the rest profit. Second a mutual fund offers professional management with investment experience to help the novice investor pick stocks. Finally they offer liquidity. Shares from mutual funds can be sold whenever the investor may need cash. The down side of having a mutual fund is they have fund fees which vary based on the fund and can often be .5% and up. If the fund loses money, the fees are still collected. There can also be front-end load fees which consumers pay up front to buy into funds that can be 4% and higher. Finance companies are a non-depository institution that gives credit to consumers for the purchase of goods. Many finance companies deal with higher risk loans so an advantage is that consumers who could goods....
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