Describe the costs and benefits to investors of owning Mutual Funds
What will be an ideal response?
Answer: Owners of mutual fund shares get professional management of their portfolio, and get a diversified portfolio, as each mutual share is a share in the whole portfolio purchased by the mutual fund. In order to get these benefits, the investor must pay commissions upon purchase, and/or pay yearly management fees. The fees can significantly diminish the value of the shares of the mutual fund to the investor. An alternative for the investor is to buy an index fund, that is a fund that tracks an index such as the Dow Jones Industrial Average or the S & P 500. An index fund tracking the DJIA, for example, will automatically purchase stocks in the same percentage that they are used to determine the Dow Jones Industrial Average. Owning an index fund reduces costs, because there is no need to have professionals running the portfolio.
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