Mutual funds are resources that help the investor garner good returns over a certain period of time. These funds include various assets which includes bonds, stocks, short-term money market vehicles, other securities etc. The mixture of various assets allows the fund manager to distribute these assets to their target markets. Depending upon the individual asset performance and market condition, the assets are sold and purchased on a timely manner to attain better yields.
Why mutual funds?
Mutual funds are usually projected as safe investment options as opposed to other investment instruments. They have attracted more attention in recent years as the market is clouted and has become more volatile. E.g. SIPs (Systematic Investment Plans).
The mutual funds approach different strategies to customer’s requirements. Below is a list of different types of mutual fund schemes.
- Mutual funds create a stable future for an investor by buying quality stocks on a long-term basis. If an investor has to carefully pick quality stocks, he would have to spend lots of time towards it and that too after thorough research. However, the mutual fund companies have hired experts to do the stock picking without much ado.
- While dealing with mutual funds, an investor purchases equities on a long-term basis. On the other hand, a stock trader frequently buys and sells the stocks to attain profits. Therefore, understanding the different between the two (mutual funds and stocks) is quite important for an investor as there are certain unsophisticated mutual fund companies which, in view of attaining short term profits, buy and sell the mutual fund assets.
- The performance of the various mutual fund assets usually depends upon the managerial skills of the fund managers who have selected such funds. Therefore, choosing the appropriate fund manager is quite necessary for an investor.
- Setting a benchmark for a particular fund and comparing its performance with its benchmark on a regular basis heightens the yield ratio.
- The mutual funds are usually distributed among various equity classes, debt instruments and also precious metals. For a novice investor, choosing only limited instrument can cause harmful effects and thus less profitability. However, the more the assets are spread, the better profit gained.