Without question, there are some disadvantages with mutual funds. They charge management fees that ultimately cut into annual return figures, they invest the way they feel most appropriate without any consideration given to the investor who pays the manager's fees, they can be narrowly focussed, and a few others that are well publicized in the investment industry.

However, mutual funds offer tremendous advantages for the majority of the population. Three of the most overlooked benefits are discussed here and they point to the very fact that mutual funds are, for the most part, an investor's best option.

1. Mutual funds offer tactical investment management. Although many funds will take a buy and hold approach, the securities they own are part of the overall portfolio for a very specific reason. It is rare that a fund manager will purchase a security that he or she feels is a losing proposition. Instead, securities are purchase for their specific appeal, whether it is short-, mid-, or long-term capital growth, income, or a combination of both.

2. Mutual funds provide expertise in niche areas where the investor lacks sufficient knowledge and skill to take positions in individual securities. With asset mix being such an important, vital part of any investor's long-term success with their investment portfolio, it becomes increasingly important to incorporate niche sectors, whether short-term bonds, high yield investments, small-cap equity, foreign equity, and so on. Almost no investor will have professional-level investment knowledge in every asset class and sub-class, requiring them to seek assistance from other professionals. Rather than relying on a rogue neighbor who dabbles in a specific asset for "fun," enlisting the expertise of a highly (often overly) qualified investment manager makes a great deal of sense for the price they cost (often, minimum investment levels are under $2,500) and you usually pay less than 1.5% in expenses.

3. Mutual funds can have specific or general functions depending on an investor's needs. Whether an investor needs a complete investment solution (such as with a target date balanced fund or portfolio) or something on a more specific level (such as filling a gap in their overall asset mix), a mutual fund exists on the market to fill those gaps, and everything in between.

As shown with these three simple examples, there is a mutual fund available to everyone, regardless of his or her immediate and long-term needs. Of course, other options exist but the closest one will find to a mutual fund alternative is an exchange traded fund, which often will not satisfy the investor's long-term and/or specific need.

--> Ten Small Cap Funds Reviewed during month of May at MutualFundSite.org.

Chris has more than 17 years of financial services expertise. He currently manages a website about Used Pallets at ShippingCrate.org.

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