Question

What are the general purposes of using mutual funds in individual investment portfolios?

Answer 1

Mutual funds are professionally managed by fund managers. Fund managers are investment experts who do the process of security selection and asset allocation on behalf of the individual investors. Thus, individuals who wish to invest in stock/bond markets, but do not have the expertise to do so, can invest in mutual funds to gain exposure to these asset classes.

Mutual funds which passively track an index (and are not actively managed to earn excess returns) have low expense ratios, and are cost beneficial for individual investors.

Mutual funds are well diversified, which means they have lower risk than portfolios with only a few securities. Thus, individual investors can diversify their investments and decrease their risk