| Mutual funds are a collection of stocks and | | | | minimizes the loss-bearing risk of monetary |
| or bonds invested in different securities, | | | | assets. |
| which include fixed market securities and | | | | |
| money market instrumentals. It facilitates | | | | In a nutshell, here are the salient points of |
| investors to put their money under an | | | | the advantages of mutual funds: |
| efficient investment management. There are | | | | |
| three types of mutual funds namely, income | | | | 1. Cost-effectiveness of investing in mutual |
| funds, growth funds, and balanced funds. | | | | funds: The main advantage of investing in |
| | | | mutual funds is the efficient management of |
| The basic principle underlying mutual funds | | | | your finances. Investors buy funds because |
| is to pool in money with other people to | | | | they lack the competence and time to manage |
| convert it into funds. Mutual funds generally | | | | their own portfolio. It is a cost effective |
| buy shares in stocks wherein an experienced | | | | method, especially for a small investor |
| fund manager performs the task of selecting, | | | | because it is expensive to get a manager to |
| purchasing and selling off the stocks | | | | manage individual investments. |
| himself. Certificates are then issued to the | | | | |
| shareholders as a testimony of proof of their | | | | 2. Diversification: Compared to individual |
| partnership and participation in the | | | | stocks or bonds, mutual funds diversify the |
| emoluments of funds. | | | | risk of bearing loss. The basic intention |
| | | | being to invest in a diverse number of assets |
| There are particularly three ways in which | | | | in order to overcome the negatives of loss |
| you can make money from a mutual fund. They | | | | making stocks or bonds by the profits reaped |
| are: | | | | by others. |
| | | | |
| 1. Benefits can be earned from the commission | | | | 3. Economy of Scale: The transaction expenses |
| on stocks, and interests on bonds. All the | | | | are relatively low as a mutual fund is bought |
| income received all round the year is paid by | | | | and sold in large amounts of credits. |
| the funds in the form of a distribution. | | | | |
| | | | 4. Liquidity: Mutual funds provide the |
| 2. The fund will have an outstanding benefit | | | | opportunity of converting shares into cash at |
| provided the funds sell high priced | | | | any point of time. |
| securities. Most of the profits are given | | | | |
| back to the investors in a distribution. | | | | 5. Simplicity: It is easy to buy a mutual |
| | | | fund. Most companies have their own automatic |
| 3. The value of the fund's share | | | | purchase plans, and the minimum investment |
| automatically increases with an increase in | | | | rates are very small. |
| the value of unsold high priced fund | | | | |
| holdings. Accordingly, you can always sell | | | | Therefore, investing in mutual funds is |
| shares of your mutual fund for profits. | | | | certainly a secure investment as the chance |
| | | | of loss is spread out, and the opportunity |
| Many people find investing in mutual funds an | | | | for gains are numerous. At the same time, it |
| attractive option to that of dealing directly | | | | is both cost-effective and an investment that |
| with the stock market because it is | | | | gives great future returns. |
| comparatively safe. In fact, these days, | | | | |
| mutual funds have become the first preference | | | | The days of depending on government largesse |
| of many investors. Mutual funds provide a | | | | in meeting old age financial requirements are |
| balanced and better approach compared to | | | | growing dimmer by the day. Hence, investing |
| conventional stock market alternatives. It | | | | in mutual funds can be a wise choice, |
| has an added advantage of investing in | | | | especially for those who plan for an early |
| several distinct sectors and firms, so, if | | | | retirement and hope to enjoy a secure senior |
| one company suffers losses, the others may be | | | | citizenship. |
| rising. Investing in mutual funds, therefore, | | | | |