Forced Diversification: Diversified mutual funds are not allowed to invest more than 5% of their fund in any single stock. If a mutual fund manager loves a business but it reaches 5% of the fund, they are forced to trim it and invest elsewhere, even if they don’t want to. Size: Mutual funds that are successful attract lots of money. As a fund grows, the manager has to make bigger investments. As a fund becomes larger it can influence market prices when it buys and sells. That can make it harder for the mutual fund manager to make good investments as it grows. Taxes:
