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A mutual fund is a pooled investment that certainly has appeal, with its instant diversification and professional management, but there are various drawbacks you need to consider before investing. Mutual funds are typically considered “low-risk” investments.

While the federal government regulates mutual funds, the funds are not insured by the Federal Deposit Insurance Corporation. You can still lose part of your investment in a mutual fund, depending on the stocks it contains and the state of the stock market. Because mutual funds are managed by a portfolio manager, you don’t have direct control over the investment. The manager can take action without your direct consent, making managing your personal portfolio more difficult. A mutual fund is typically a diluted investment because of the way securities are purchased. Mutual funds are a mix of small amounts of various securities, thinning out the returns on securities that are doing exceptionally well in the fund. Mutual funds also are subject to various fees, including management and operating costs, that eat at your investment. Some mutual funds are also subject to restrictions on trading and can’t be traded until the end of the day, when the value might have already dropped from the day’s open.