Mutual funds are an ideal choice for several investors. They are simple to use, and there are many benefits of mutual funds. But, what is a mutual fund? A mutual fund is a financial instrument, set up to manage the money pooled from investors at large professionally. By pooling the capital together in a mutual fund, individuals can enjoy economies of scale. Mutual funds are managed by Asset Management Companies (AMC). Each AMC operates several schemes suited to different types of investment needs.Instead of investors fretting about which scheme to invest in, professional fund managers do the job.
Several investors do not have the time and resources to study and research the market. Mutual fund investments serve to be one of the best investment options for these investors. This is because the investors can reap the benefits of different types of investments with minimum effort and at a lower cost.
Types of mutual funds
There are different types of mutual funds with a wide range of profit potential, risk levels, and kind of fund management. Equity funds have the potential to provide higher returns, but they come with a higher risk. On the other hand,some funds invest in short-term bonds that have the potential to fetch relatively lower returns than equity mutual funds but at a much lesser risk. There are several intermediate funds availale to investors as well that offer varying degrees of risk vs returns. For instance, hybrid funds, also known as balanced funds, are a mix of equity funds and debt funds.These mutual funds combine the characteristics of equity and debt. Then there are international funds that invest in foreign securities without individualsneeding to contribute to foreign currency.There are also gold funds that are a way of investing in gold without having to purchase physical gold. They allot mutual fund units that hold physical gold as the underlying security. These funds fetch returns similar to that of physical gold but without the hassles of purity checks, storage, liquidity risk, etc.There are also index funds that track the performance of the underlying index, such as the BSE or the NSE. These funds try to replicate their underlying index and produce similar returns.
Investors should keep an eye on the track-record of individual funds and their fund managersto make the right decision.
Mutual funds offer the convenience, diversification, tax efficiency as well as many other benefits. There are various types of mutual funds available for a wide variety of investing needs. If you are new to the world of investing, you might invest in mutual funds to get the best of the equity markets. Before you invest in mutual funds online, just make sure they align with your personal goals, investment horizon and risk profile. Happy investing!