What is a Mutual Fund?
You must have heard the name of mutual fund many times, some calls it to be smart investment plan while some calls it as risky investment where you may loose your money too. Isn't i right ??
Then, what to do? First of all, lets understand mutual fund in easy language..
Mutual funds are most trendy & popular investment plan for everyday investor. Why? Because mutual fund are simple investment and easy to use too in lots of ways, means the one who is not having very good idea for investment or, don't have expertise in investing. Mutual fund do that for those people.
Generally, mutual fund is a collection of many stocks, bonds and cash or combination of all those assets which are packed together to form a basket which many calls it as portfolio.
For, example- a investor who buys a fund named XYZ international stock is called as buying one investment security or portfolio or basket - that holds dozens or hundreds of stock from all around the globe.
Why Mutual fund?
Mutual fund is generally the best investment plan in present time and even for future too. How? because, you are giving your money to an expert who will invest your money in a mutual fund scheme which comprises of numbers of stocks or bonds i.e. you are investing your money in lots of different companies but not the only one that we generally do in share market.
For, example- Suppose, you have chosen a mutual fund scheme named as
XYZ international stocks, and you are investing $1000 in this portfolio that means your $1000 is getting invested partially in dozens or hundreds of companies stocks or bonds means even if some company stocks fails in future but that will not lower all your money but just the amount that was invested for those companies will decrease. But, as you know your $1000 was invested in dozens of companies stocks so, if 2 companies stocks fails and 10 companies stocks grows quite good. Your $1000 have the better chances to grow in future.
Advantages of mutual funds:-
Simplicity: Most investors don't have the knowledge, time to build their own portfolio of stocks and bonds. Even, they might not have that much technical analytics skills to first calculate, analyze multiple stocks & then invest in their chosen portfolio. But, mutual fund provides that where investors don't require all these technicalities.
Higher Returns: As, mutual fund schemes are comprised of dozens or hundreds of stocks or bonds. So, there are better chances of getting higher returns in future.
Dis-Advantages of mutual funds:-
Risk: As, compared to normal investment plan i.e lic policy, fixed deposit etc. there is no certainty of returns in mutual fund. You,may loose your money if mutual fund scheme fails to perform. So, while choosing mutual funds. You must do some research over that mutual fund scheme.
Which mutual fund is best?
This, can be answered by your risk level that you can afford to take while investing and keeping future plans of yours in mind.
There, are thousands of mutual funds schemes based on different levels of risk and returns.
Low Risk, Moderate Risk, High Risk mutual funds. It is generally defined as more the risk higher the returns. And, what to choose depends totally upon your interest.
Hope, all your doubts regarding mutual fund investment has got cleared somewhat.
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By Neerav Kumar - TruFins Expert