Because funds can hold anywhere from a few stocks to thousands, your risk is spread out more than if you invest directly in a company whose stock could founder. These funds are professionally managed by experts who keep close tabs on the fortunes of the companies in their portfolio. They are watching out for your investment with expert, practiced eyes. Also, mutual funds often buy and sell securities in volume. This lets you, the investor in the fund, benefit from lower management, research and trading costs.
Mutual funds can be risky investments.
Unlike stocks, where it is possible to tell if a stock is undervalued according to any of several different measures, it is much harder to determine if a mutual fund's net asset value represents a good value or not. A fund could have shown a solid rate of return for a particular period, but that could be a result of its holdings having reached peaks from which they might then plateau or decline. Although most money market mutual funds are arguably as safe or safer than bank accounts, mutual funds don't guarantee that your original investment will be returned to you. A mutual fund is a collection of stocks, bonds or other securities managed by full-time professional advisers who research and evaluate the markets every day. This is a big advantage if you don't have the time or interest to devote to investing.