What is a Mutual Fund?
A Mutual fund is an act of pooling money from many people and offering professional management for them. You get charged a fee for this service. Mutual funds portfolio is a collection of securities. Those investing in them are the shareholders. There are thousands of mutual funds out there with varied objectives. Mutual funds invest in bonds, stocks or both. Some fund companies are geared towards earning the investor interest while others target growth. Here is a closer look at mutual funds.
Mutual funds have a variety of advantages that make them right for you as an investor:
Mutual funds provide Diversification
Mutual funds operate by pooling of money from different investors. Through this method, you buy into a pool of investment. There exists a diverse variety of investment opportunities either through bonds or stocks. While some stocks will perform highly, some may not do so well. The good performers from your investment will offset the bad ones. This is the mutual fund diversification benefit.
Mutual Funds are Easy to Transact
You might develop an urgent need for money tied up in a mutual fund. This can be freed by selling the shares held. The services of selling and buying of mutual funds are available from a wide range of institutions. Trust companies, Investment firms, Credit Unions, Banks or financial planning firms can be used to transact. It gives you the freedom to access your money when you need it. However, you need to transact wisely to avoid selling at a loss.
Professional Fund Management
When money from different investors is pooled together, it is left at the hands of a portfolio manager to manage. The portfolio manager makes all the decisions on where the money will be invested. He decides when to buy or sell. This means that people without investment or management skills can comfortably invest in mutual funds. Even for people with financial management skills, mutual fund investment saves them time.
Wide Variety of Investments to Choose from
Mutual funds have different goals and objectives. Equity funds present a higher risk but offer greater potential to give returns. If you are a youth still with many years to work and invest, this may be a great opportunity to invest in.
A balanced mutual fund could be more suited to you if you are a mid-career investor. It offers a balance between the risk and return. Moderate risk will give you moderate returns.
A bond fund might be the best investment for you if you are approaching retirement. It will give you a fixed income while presenting the lowest risk
Mutual funds are a right investment choice. Choose them wisely depending on your goal and objectives. Enjoy as your investment is being managed by professionals and watch it grow.