A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus. Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments.
Mutual fund General
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A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.
What Is a Mutual Fund?
Factors to consider while investing:
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Benefits of investing in mutual funds:
Diversification: Diversification, or the mixing of investments and assets within a portfolio to reduce risk, is one of the advantages of investing in mutual funds. Experts advocate diversification as a way of enhancing a portfolio’s returns, while reducing its risk. Buying individual company stocks and offsetting them with industrial sector stocks, for example, offers some diversification.
Easy Access: Trading on the major stock exchanges, mutual funds can be bought and sold with relative ease, making them highly liquid investments. Also, when it comes to certain types of assets, like foreign equities or exotic commodities, mutual funds are often the most feasible way—in fact, sometimes the only way—for individual investors to participate.
Economies of Scale: Mutual funds also provide economies of scale. Buying one spares the investor of the numerous commission charges needed to create a diversified portfolio. Buying only one security at a time leads to large transaction fees, which will eat up a good chunk of the investment.
Professional Management: A primary advantage of mutual funds is not having to pick stocks and manage investments. Instead, a professional investment manager takes care of all of this using careful research and skillful trading. Investors purchase funds because they often do not have the time or the expertise to manage their own portfolios, or they don’t have access to the same kind of information that a professional fund has.
Variety and Freedom of Choice: Investors have the freedom to research and select from managers with a variety of styles and management goals. For instance, a fund manager may focus on value investing, growth investing, developed markets, emerging markets, income, or macroeconomic investing, among many other styles.
Convenience: For investors, one of the most prominent benefits that mutual funds provide is convenience. By investing in a single fund, they can gain access to a broad range of the financial market. A typical diversified equity fund can spread out the money across tens of stocks with some portion invested in fixed income securities as well.
One of the safest funds that provide a reasonable rate of return
Invests in different asset classes for a diversified portfolio
Debt fund that invest in government securities
Fund that primarily invests in stocks
Why are mutual funds important?
While providing a vast array of choices, equity mutual funds also spread across their assets across various sectors and industries. If the fund is diversified, it also spreads its assets across market capitalizations. Apart from this, equity funds can invest some portion of their assets in bonds as well. This spreading out of assets is the basic concept underlying diversification. Portfolio diversification can be achieved by buying individual securities as well. But with a limited corpus to invest, there are only so many stocks and bonds that an investor can buy. More so, there may be some bonds which may be out of reach of investors as the ticket size of a single purchase is very high. Meanwhile, mutual funds provide instant diversification.
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