If you invest nothing, the reward is worth little
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.
- A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities.
- Mutual funds give small or individual investors access to diversified, professionally managed portfolios at a low price.
- Mutual funds are divided into several kinds of categories, representing the kinds of securities they invest in, their investment objectives, and the type of returns they seek.
- Mutual funds charge annual fees (called expense ratios) and, in some cases, commissions, which can affect their overall returns.
- The overwhelming majority of money in employer-sponsored retirement plans goes into mutual funds.
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Who Should Invest in Mutual Funds?
Everyone who has a particular financial goal, short-term or long-term, needs to invest in mutual funds. Investing in mutual funds is an excellent way to accomplish your goals faster. There are mutual fund plans that suit all personas. Investors need to assess their risk profile, investment horizon, and goals before getting started with their mutual fund investment. For example, if you are risk-averse and planning to purchase a car in five years, then you may consider investing in gilt funds. If you are ready to take some risk and are planning to buy a house in a period of fifteen to twenty years, then you may consider investing in equity funds. If your investment horizon is less than two years and is looking to earn higher returns than a regular savings bank account, then you may consider investing in liquid funds.
Some common categories of mutual funds are:
- Equity funds - funds that invest only in stocks and other equity instruments
- Debt funds - funds that invest only in fixed income instruments
- Money market funds - funds that invest in short-term money market instruments
- Hybrid funds - funds that divide investments between equity and debt to create a balance