Mutual funds are a type of investment vehicle with the help of which money can be pooled from multiple investors for investing in a diversified portfolio of stocks, bonds, and other securities. With the help of mutual funds, it becomes possible for the general people to invest in a diversified range of assets. Due to mutual funds people do not need to select or manage individual securities themselves.
Essential features Mutual Funds
Some of the most essential features of mutual funds are:
- Diversification: In mutual funds investments are spread across various securities and as such it helps in reducing the risk. The basic objective of mutual funds is to minimize the impact of poor performance by one investment on the overall portfolio.
- Professional Management: Fund managers have expertise in selecting investments and managing funds. The main aim is to get the objective of the fund and outperform relevant benchmarks.
- Liquidity: At the end of each trading day investors can buy or sell the shares of the mutual fund. With the help of liquidity, it becomes easier for investors to access money. However, depending on the fund and the condition of the market the actual liquidity also varies.
- Affordability: As compared to the direct buying of the individual stock market and bonds mutual funds require lower investment. That is the reason why mutual funds are highly accessible to a wide range of investors starting from beginners to those who have substantial capital.
Types of Mutual Funds
Mutual funds or NFO mutual fund can be of various types and some of the essential ones are:
- Equity Funds: These types of funds invest in stocks and are mainly designed for those investors who are seeking growth through capital appreciation. In the equity fund, there are various types of styles such as large-cap, mid-cap, or small-cap and it depends on the size of the companies that they will invest in.
- Bond Funds: These types of funds invest in fixed securities such as government or corporate bonds. These funds are less volatile as compared to equity funds and are highly suitable for those investors who are seeking regular income.
- Money Market Funds: These types of funds invest in short-term and low-risk securities such as Treasury bills and commercial paper. These funds provide stability and liquidity but as compared to that of other mutual funds it gives you low returns.
- Balanced Funds: These types of funds invest in a mixture of stocks and bonds. These funds also provide a balance between growth and income. These funds are mainly designed for those investors who want a diversified investment in a single fund.
Hence, mutual fund is a valuable component that provides diversification, professional management, and accessibility.