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The Benefits Of Investing In Specialty Mutual Funds

George Sterling | Monday, September 17th, 2012

Investors or people who have studied investment know that there are a lot of options when it comes to investing money and just like majority of the investment opportunities that exist out there, specialty mutual funds offer a lot of chances for the investors to expand and diversify their investment portfolios and enter some particular categories and niches in the equity market.

Just like any other investment or investment fund, the specialty mutual fund has its share of advantages and disadvantages because it offers extreme growth but at the same time, the risk of investment in these funds is comparatively higher.

Whether you should or shouldn’t invest in specialty mutual funds depends on what kind of investor you are. If you are interested in particular niches of the market, these types of mutual funds make a great choice of investment.

Given that you are interested in exploring different categories existing in the equity market and want to diversify your portfolio, making an investment in specialty mutual fund would prove to be a good choice. An example of specialty mutual fund is the Gold fund. If for instance you are investing in different securities existing in the gold industry, you will benefit greatly when there is a jump in gold prices. However, at the same time, when gold prices suffer, you will suffer by large as well because every investment that you had made was in gold securities and thus, there will be no way of escaping the losses.

If you are an investor interested in increasing your portfolio’s reach and diversity, you can reach out to different sector specific securities in a particular fund but at the same time, you are going to benefit or lose money if that sector adds or loses value.

Additionally, majority of the funds are ranked based on the performance of the broader market or a particular benchmark. Since this is the general case or rule, a lot of investors and portfolio managers will depend largely on the securities which are traded within the broader index and will most likely not take risks. As a result of this, your ultimate gain will depend on how the broader index performs.

However with specialty mutual funds, you will be able to add to your current holdings by moving off from the usual routine. People who invest in these funds will be equipped to add industries and sectors that usually don’t get much attention. This way, you as an investor will be able to again, diversify and not stick to a specific path: the gains and losses however depend on how the unnoticed sectors perform.

If your current holdings are dependent on the broader index by large and you make an investment in a specialty mutual fund (for instance some sector that is totally different than your existing investments), you can benefit in two scenarios; one is when the broader sector drops as a result of which you also lose money but at the same time you can gain if the sector in which you invested additionally performs well.

With specialty mutual funds, you are given a choice of diversifying your investments but the risk associated with such investments is very high. However, the gains are also very high, depending on where you have made your investments and how well those funds/securities and sectors perform.

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