Disadvantages of Aggressive Mutual Funds
1. Entry or Exit Load: There are mutual funds that impose an entry load, an exit load, or both. The major reasons they collect this fee are to keep their business running and cover employee salaries. Occasionally, the fee might reach a maximum of 3% of the total amount invested. It typically stays at 1%, though.
2. Diversification Might Cause Lower Profits: Although loads on mutual funds may appear like one of their biggest disadvantages, funds with high loads typically yield returns that are far higher than those of average mutual funds. Therefore, you should consider the fund’s past performance before making a decision, even if the load will undoubtedly reduce your earnings.
3. Difficult Phases: Even while long-term investors almost never lose money, if you invest before a bad period then you can have to bear a capital loss. Returns on mutual funds are never certain. It is therefore advisable to have some knowledge about the fund industry and the economy before making an investment.
4. Liquidity: Some mutual funds are of fixed maturities such as ELSS funds. ELSS usually has a three-year lock-in period. The lock-in period for a fixed maturity plan also varies according to the investment instrument it uses. You are not allowed to withdraw the units before the fixed period.