A great deal of mutual money scam has pervaded our financial sector. By definition, a Mutual Fund is a type of collective investment scheme in which money is pooled from many investors. It is usually managed by mutual money managers who invest this pool of money in stocks, bonds, short-term money market instruments, and/or other securities on behalf of the investors.
This type of investment came with some notable advantages, one of which is the fact that small investors are given access to professionally managed, diversified portfolios of equities, bonds and other securities, which ordinarily would be quite difficult (if not impossible) to create with a small amount of capital.
However, in spite of the widespread hype about mutual money investment by financial planners, there has been a great deal of mutual money scam going on around. This as a matter of fact, occurs as a result of many factors. One of these factors is the fact that a lot of people get carried away when it comes to investing their money especially when so much profit is being claimed to be involved.
In order to woo their prospective investors, promoters often claim that mutual funds are great long-term investments with high returns and very low risk. Whereas, opposite is the reality. Experiences of many kinds have shown beyond doubt that mutual funds are in most cases good for lining the pockets of people who sell and run them. The major setback is the menace of high fees which is discussed as follows:
Compared to other investments, mutual funds usually carry high fees. Ranging from the purchase fee, redemption fee, exchange fee, account fee, management fee, and fee for going to rest room, buying a mutual fund is capable of putting you in the red if care is not taken.
In the same vein, there are several other means through which the mutual money investment can stylishly gulp your money such as the backend loaded funds, in which all your money goes into the fund and you're left locked in for up to ten years, if you wish to avoid paying a load. But if you need the cash before the specified time (mostly 10 years), you have to pay a commission on not only the amount you invested but also on the profit as well.
There are also the dubious “no load” funds. Don't be surprised that there is no such thing as no-load-fund. There is a load on all funds. The truth of the matter is that when the financial planner sells you the fund, he gets his commission. The fund pays the commission if you do not pay it. It is left for you to judge where the fund eventually takes the money from!
Up till now, regulatory agencies have not been able to promulgate any meaningful regulation to checkmate growing menace of mutual money scam.