Mutual fund as An Investment
Mutual fund is an investment that pools the investor money in different securities such as stock, bonds, money market and similar assets. This investment may be in shares, Debt securities, money market securities or a combination of these. Mutual funds are managed by money manager on behalf of the investor. Each investor hold the share of the portfolio that is a profit gained by investor when the securities are sold but in the case of any kind of loss investor money is as usual remain.
It is very important for an investor that before buying a mutual fund confirm with an adviser that the scheme is best suited for them or not. Confirm the shareholder fees of their mutual fund to find what fees they will pay.
Types of mutual funds:
There are two types of Mutual funds.
- Open ended
- Closed ended
Open ended Fund:
Open ended fund does not have a fixed maturity time. The maximum mutual funds are open-end funds. This is available for buy or sells through the year at any time at a price linked to the fund’s Net asset value. Open ended fund further divided into following.
- Money market
Close ended funds
This type of fund has a fixed maturity period and investor can invest only during the initial launch period. This period also known as the “NEW FUND OFFER” period. This fund is operates for a limited period generally for 3 to 15 years. Close ended fund further divided into following.
- Capital protection
- Fixed maturity plan
Advantages and Disadvantages of Mutual funds:
Advantages of mutual funds:
- Professional management
- Risk reduction
- Minimum initial investment
Mutual funds are managed by professional investment companies. Mutual fund manager is a decider for buy or sell policy it depends upon market condition and some other factors. Fund manager have more money to research more securities more in depth as compare to the other average inverter.
Mutual fund invest in a different rang of securities. Mutual fund is available with a minimum investment. When an investor investing in a single fund, an investor is actually investing in a lot of securities. It reduces risk for an investor.
Various information like buying and selling shares, changing distribution option are available on a phone call, mail, or online. But it is very necessary that an investor search all the information about scheme before investing their money.
In a mutual fund scheme you can get your money back whenever u wants at net asset value related prices from the mutual fund itself. But fees and all the commissions are reducing by the specific fund and the institution that executes the order.
Minimum initial investment:
If a normal person want to buy a mutual fund it is very easily available for them at very minimum cost. A person perches a mutual fund at initial investment of $1000. You can buy some funds for as $50 per month if you agree to invest in dollar.
A mutual fund is very transparent an investor can get every information about their investment at every time. Ever information is available on a phone call or by mail.
Disadvantages of mutual fund:
- No guarantees
- Tax inefficiency
- Poor trade execution
- Management abuses
- High expense ratios and sales charges