Mutual funds accommodate financing needs of corporations, the Treasury, and muni

Question

Mutual funds accommodate financing needs of corporations, the Treasury, and municipal governments by purchasing newly issued stocks and bonds in the primary market. They also frequently purchase securities in the secondary market. They enable individual investors to diversify their investments with a limited amount of funds.

a.)As between systematic and unsystematic risk, which one has more impact on your portfolio? Why?

b.)There are a variety of categories of stock funds and bond funds. Of these, which would you prefer to invest in and why?

c.)In your opinion, should mutual funds be subject to more regulation? Explain your answer.

Explanation / Answer

a. Systematic risks has more impact on our portfolio than unsystematic risks. As a matter of fact, unsystematic risks can once be diversified by constructing a portfolio with good and reliable securities, but systematic risks cannot be avoided. Doesn't matter how good our portfolio is it will still remain vulnerable to systematic risks. Systematic risks includes decline in market interest rates, recession, adverse market conditions, etc.

b. It depends upon the preferences of an investor in which fund does an investor wants to invest. Both stock funds and Bond funds have their pros cons. If an investor chose stock funds it can enjoy the participation in the profits or decision making of a company. But it doesn't give a fix income to the investor. Sometimes less sometimes more, too much fluctuations. On the other hand Bond funds do give fix, certain and sure income to the investor but it doesn't make the investor eligible to enjoy the voting rights of a company.

c. Mutual funds is a kind of mechanism of investment which requires the public money for investment. The fund has a portfolio manager and all public money is invested as per his own discretion. Little mistake in analysis part will vanish the public money which is very harmful as far as the public interest is concerned. Thus, yes mutual funds should be subject to more regulation.

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