As such, their actions will add to market fluctuations and will have an impact on the value of mutual fund shares. A mutual fund investor has no control over the underlying investments in a particular mutual fund, only over the choice of which funds to purchase. The guidelines established in a fund's prospectus drive the management of its assets. If an investor has specific investment policies and goals, a mutual fund may not be the best way to meet them. However, if an investor wishes to rely on the fund manager's reputation and the overall stated goals of the fund and prefers a collective approach to investment management, mutual funds may be a good choice.
Many investors sing the praises of index funds.
Index fund proponents favor them for a number of reasons. Low stock turnover can result in lower fund expenses. Stocks in the index and their corresponding concentration levels are not actively managed. Overall, lower expenses give index funds a head start when it comes to performance. Due to low stock turnover, unrealized capital gains accumulate tax-deferred.