Mutual Funds Investments: Selecting Criteria

• The essential purpose behind mutual funds is to secure two important benefits for small investors, viz.,(a) diversification of risk, and (b) professional management of investments.• Mutual funds can spread their investments over dozens or even hundreds of companies, but this is not possible for a small investor. Diversification reduces risk.• It may be noted that success in the investment game requires that:a) One must be prepared to spend the time required for selecting investments; andb) One should also have the necessary skills. A majority of ordinary investors can’t devote the time required and/or don’t have the skills.• Mutual funds resolve the problems mentioned above, as they employ full-time professionally qualified managers who continuously follow companies and can be expected to select the investments more skillfully than ordinary investors.