Mutual Funds comprises of money collected from different investors with a common objective for the purpose of investment in different securities such as stocks, bonds or other assets. There are professional money managers who manage these funds to gain a profit for its investors. Every investor is the owner of a unit which is the representation of its part in the fund. The profit made by that venture is divided proportionately according to your unit. The income is earned in the form of dividends on the stocks that were bought along with the interest which is earned on the bonds that are present in the fund’s portfolio.
Mutual funds are an easy and a safe way to invest owing to its diversity. There are four varied types of mutual funds:
- Investing in Stocks or equity
- Bonds or fixed-income funds
- Short-term debt
- Both stocks and bonds
These are designed to spread the risk while still capturing wider gains in the market. Some mutual funds are riskier than others, but they also give greater benefits.
Why choose mutual funds?
Mutual funds when compared to the stock market are considered safer due to the following reasons:
- Built-in diversification: On buying a mutual fund, the money gets combined with that of the other investors and thus allows you the chance to buy just a part of the investment, thus reducing the risk.
- Professional management: For the people who do not have the skills and the knowledge to manage their own funds, the important decisions regarding the mutual funds will be taken by a professional portfolio manager about where to invest and how to invest.
- Mutual funds are very easy to trade: These are available through trust companies, banks, investment firms and many other places which are easy to access and they can be sold or bought very easily.
- A wide range to choose from: The mutual funds cater to all age groups according to their requirements. An old person may not want to take as much risk with his money than a young person might want to.
The schemes provided by the mutual funds can be open-ended or close-ended. The open-ended schemes are the ones which are available throughout the year for subscription on every business. The close-ended funds are the ones which can be subscribed only during the initial period and have a fixed date of maturity. They can either managed actively by the investor or can be managed passively via a professional portfolio manager.
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