We all must have heard about mutual funds. Of course, why won’t we! It has been one of the most trending ways of investing your money! But is that it? Is mutual fund just another investment option that investors get while investing their money!! No it isn’t the complete case.
Mutual funds are not just an investment option for the investor; instead, mutual fund is an institution which collects money from a large number of investors and pools it together and further invests the money so collected in different securities such as shares, stocks, bonds, etc. Mutual funds are managed by institute called Asset Management Company (AMC) and the regulatory body is Securities and Exchange Board of India (SEBI).
Mutual funds are one of the most opportunistic modes of investing your money. Instead of just depositing your money in a savings bank account and getting fixed interest every year, mutual funds help in diversification of the investment of funds. It is less risky as it has the option of being converted into liquid cash and also that the owner of mutual funds can sell their securities at any point of time they want. Also that when a mutual fund trust invests the money it enjoys economies of scale which would not have been enjoyed by any individual investor for the same security. Also mutual funds when handled by professionals, the investment decisions are taken under professional expertise, which enhances reliability.
Mutual funds though may seem to be very attractive for investors; it requires huge cost for it to run. The running of a mutual fund, start from its creation is an expensive deal. Also, it is not necessary that the mutual fund will be a profitable move for the investors; Many times the failure of mutual funds has been evidently observed.