The third principle of mutual fund investing is liquidity. Mutual fund shares may be acquired or liquidated at a moment's notice at the fund's next determined net asset value per share. What is more, there is no direct cost of market impact, wherein buying securities tends to drive prices higher and selling securities tends to push prices lower. Nor is there a charge when shares are liquidated (although in some cases a 1% redemption fee is charged and in other cases a contingent deferred sales load may be assessed).
Owning securities individually, of course, is also apt to provide a reasonable level of liquidity. However, mutual funds can easily be converted into cash at a fraction of the cost you would incur in selling individual stocks or bonds. More, the ability to switch easily among different investment options provides remarkable flexibility in building a diversified portfolio, especially considering the costs involved in exchanging individual securities.
Owning securities individually, of course, is also apt to provide a reasonable level of liquidity. However, mutual funds can easily be converted into cash at a fraction of the cost you would incur in selling individual stocks or bonds. More, the ability to switch easily among different investment options provides remarkable flexibility in building a diversified portfolio, especially considering the costs involved in exchanging individual securities.
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