Welcome back. In the last video, we talked about all the advantages of mutual funds. Now, let's take a look at the disadvantages of mutual funds. We have been discussing that the mutual funds are professionally managed by the MCs through professional fund managers. Now, this management by the professional fund managers comes at a fee, the AMC is charged a certain amount of money from the investors for the management of the mutual funds. Now, we are not talking about the fees which is involved in terms of managing a mutual fund account.

This is nearly the same as what you would require for maintaining account for trading on shares etc. The mutual funds they have certain fees which is specifically mentioned meant for paying the fund managers for managing the mutual funds. Normally we know this as the expense ratio which we will discuss later in the course. The second disadvantage is that, as with shared reading, shared reading we can time the when we when we want to purchase a share or when we when we want to sell a share, we can study the company's records and see their performance and make decisions as to when to buy and sell. Now, this normally results in good profits is if the timing is correct, with mutual funds we do not have this control. This is basically because the mutual fund houses they will invest in a portfolio and we have to buy and remain on the portfolio or sell the portfolio based on our judgment.

Now, there is a sub element of timing also involved in mutual funds now that it is completely not there. Mutual Funds also rise and fall along with the market and that time that can be tied as to whether you want to buy a buddy want to sell that mutual fund However, this is not as flexible as we have the opportunity with shares. The third disadvantage is that with mutual funds, we do not have the opportunity to customize this is because the portfolio of the mutual fund is managed by the fund managers. Now, if we are trading directly in shares, then we have the opportunity where we can think okay, we would like to have this share in our portfolio, we would like to remove this shadow portfolio, we do not have this flexibility with mutual funds. The only when the fund managers decide to change the shareholding patterns of the within the mutual fund will there be any change in the portfolio of the mutual fund.

However, we can work around this also, by having a portfolio of mutual funds itself. You will see how this can be done. The last disadvantage that we'll discuss is that the returns of the mutual fund portfolio's depends heavily on the fund managers skill and judgment. This is because the entire mutual fund is managed by the fund manager and it is totally the scale of the fund manager that determines how much the mutual fund will make profits and losses. Now the history of the fund managers, the track records etc is publicly available. So it is very important to study their backgrounds and their history of performance etc before investing in a particular mutual fund.

Thank you for watching, see you in the next lecture.