What is mutual fund indeed?
A mutual fund/MF is compilation of investment from many investors in an in investing scheme, these investments are typically in securities like bonds, stocks, short-term money market instruments and/or commodities such as precious metals and which are managed professionally. For effective management of your funds a fund manager should involve your investments in trades like buying or selling in accordance with the fund's investment objective.
Moreover, Mutual Funds are one of the most investor friendly investment boulevards available to the Indian Retail Investors, today. MFs are an indirect way of taking exposure to the Indian equity market.
MFs may invest in many kinds of securities; the most common securities purchased are "cash" or money market instruments, stocks, bonds, other MF shares and more exotic instruments such as derivatives like forwards, futures, options and swaps. When one invests in a MF, he infects buys units or portions of the MF and thus investor becomes a shareholder or unit holder of the fund. MFs are hence regarded as one of the best investments as compare to others as they are easy to invest and also very cost efficient. Its biggest advantage is diversification, by minimizing risk & maximizing returns.
What are benefits of Mutual Funds?
MFs are cost-effective and easy investment process.
Likewise by investing all the money in a MF, investors can buy stocks or bonds at lower trading charges.
Another advantage is diversification. Diversification stands for diffusing money across various different categories of investments.
This is helpful in reducing risks as there is every possibility that when one investment is down, the other can be up.
Other investments lacks flexibility, transparency, professional investment management, liquidity and variety hence an added advantage.
What Rewards and risks Mutual Funds involve?
The impromptu, downward or upward behavior of the markets can be termed as risk in this. Volatility in the market activity and individual issues can be attributed to several key factors like Inflation, Interest rate changes and General economic scenario. These aforesaid factors are the main cause of worry amongst the investors. Often investors concern that the value of the stock they have invested will fall substantially. However, these elements of volatility that can also bring them significant long-term return in equivalence to a savings account.
Types of Mutual Funds
Mutual funds have different structure and aims, which in turn enable us to classify them into various major categories. These categories are:
Load and No-Load MFs
Money market funds
Exchange Traded Funds (ETFs)
Open end funds
Mid cap funds
Large cap funds
Fund of funds (FoF)
Overall say about mutual funds.
The main advantage of investing in a mutual fund is diversity. Instead of owning individual stocks or bonds, investing in a MF spreads risk across a broader portfolio of investments. Other advantages include professional management, simplicity and convenience. Investors also have easy access to their money, making a MF investment a liquid asset.
An AUM Financial Advisors-Experts in Mutual Funds Advisory initiative.