What are mutual funds?
Mutual funds are an investment tool which are made up of pool of money that are collected from investors for the purpose of investing in securities like stocks, bonds, money market instruments and other different assets. Generally, the funds are allocated in mutual funds which are handled by professional money managers, who will have the expertise of handling the money in this field and this will help the investors with producing capital gains or income for fund’s investors. A mutual fund’s portfolio is structured and is maintained for matching the investment objectives of investors. Comprehensive knowledge about these funds helps a customer understand in depth about the funds so they will be able to make better decisions about mutual funds. Mutual fund has provided small and individual investors the access to professionally managed portfolios of equities, bonds and other securities. Hence, every shareholder participates in the gains or losses of the fund. Investment advisor or fund manager may employ analysts for helping pick investments or performing market research. Fixed income mutual funds focus on investments that pay a fixed rate of return like government bonds, corporate bonds or different debt instruments.
After an investor has completely understood what mutual funds are and the different functionalities of it, they would not have a problem in investing in mutual funds by themselves. Mutual fund units or shares are easily purchased or redeemed as needed at the fund’s current net asset value (NAV). A mutual fund’s NAV is found out by dividing the complete value of securities in the portfolio by the total amount of shares outstanding. Value of mutual fund company depends on the performance of securities it will decide to buy. When investors buy a share of mutual fund, they are actually buying the performance of the portfolio. Mutual funds can be as simple as buying or selling stocks or bonds online. An investor can easily sell their shares whenever they need.
Some of the types of mutual funds are:
- Hybrid funds:
These funds are invested in different asset classes. Through these funds, the returns and risks will strike a perfect balance.
- Index funds:
They are investment instruments that represent specific index on the exchange for monitoring returns and movement of index.
- Equity funds:
These funds are invested in equity stocks or shares of companies. They provide a higher result, that is why they are considered high risk funds.
- Debt funds:
Debt funds were invested in debts like government bonds and fixed income assets. Since they are fixed returns, they are safe investment instruments.
- Money market funds:
Funds are invested in liquid instruments, they are considered a safe investment option as the investors get an immediate yet moderate returns on their investment. They are perfect for investors who wish to invest their abundant funds.
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