WHAT ARE MUTUAL FUNDS ? ARE THEY BENEFICIAL ?
Mutual fund is the most popular type of investment company. Investment company is a financial intermediary that receives money from shareholders and then invests those funds in a diversified portfolio of securities.
If you are the one who has a little bit interest in share market but have no proper knowledge, have low investment, low risk bearing capacity, less time and want highly professional people to manage your money ,then mutual fund is your alternative choice. Then the real question arises here is what is mutual fund ? MUTUAL FUND is a type of investment company that receives money from many investors, collects those money and invest them in a diverse portfolio of securities like in bonds ,stocks ,shares etc. That means it splits an investor’s investment into many parts and then invest each part in different sectors and generates various portfolios. For example: it may splits your $100 in to 5 or 10 or 12 parts. lets say into 5 parts and then it invest your each $20 in 5 sectors that means in various sectors and generates diversified portfolios.
You may be shocked to hear that with only low investment or let say with just $100 ,you can get shares of numerous blue chips company by investing through mutual funds. Mutual funds are well managed by asset management company(AMC). These AMC hires professional managers who are well informed about the market ,they analyze and studies each and every company and select best ones to invest.
Mutual funds can help in spread of risk, diversification in portfolio, expert and professional management of your money. It has low brokerage and transaction costs , flexibility, lower tax and higher returns .so it’s popularity is increasing day by day.
Now I’m gonna write about the benefits of mutual funds.
1) Diversification of portfolio: we all know that diversification can improve the risk-return trade off associated investing. mutual funds provide a well diversified portfolios for the investors as it owns multiple securities. A diversified portfolio is the biggest thing for any investor.
2) professional management: As a beginner in secondary market ,we won’t be able to understand it’s volatility. By investing in mutual funds ,we don’t need to think about what to buy ,when to buy and when to sell. They have a team of well skilled professional managers who will do this work for us .You can also hire personal manager but it is very costly but in other hands, mutual funds so it for free or with less charge.
3)Liquidity: Mutual funds are just like a stock market which has high liquidity where we can easily sell or buy the shares whenever or wherever we want.
4)participation of small investors: Mutual funds provide small investors an opportunity to invest in securities i.e. an investor with less investment can easily enter this fund. For eg; An investor with $100 can buy securities of high price stocks such as of Apple, Amazon, Tesla etc.
5)Economy: Mutual funds achieve important economies of scale in selecting stock and managing a well diversified portfolio where as managing your own diversified portfolio individually takes more time and it’s much more costly.
6)Helps in beat inflation: Mutual funds help to beat inflation because in general it gives around more than 10% annual returns which is actually twice than by a saving bank account.
7) Governmental securities
8)can use as short term trading
9) helps in accumulation of wealth etc.
watch the video for detailed knowledges.