RSSMutual funds are a popular investment for many types of investors because they offer a convenient, cost-effective and easy way to invest in the financial markets.
A mutual fund company pools the money of many investors and invests it for them in a collection of securities by purchasing stocks, bonds, money markets and/or other securities. These securities are often referred to as holdings and all of the fund's holdings combined make up the portfolio. The assets in a mutual fund's portfolio are managed by a professional money manager(s) who decides which securities to buy and sell based on the fund's investment objective, detailed in the fund's prospectus.
Professional investment management - One of the primary benefits of mutual funds is that an investor has access to professional management. A good investment manager is certainly worth the fees you will pay. Good mutual fund managers with an excellent research team can do a better job of monitoring the companies they have chosen to invest in than you can, unless you have time to spend on researching the companies you select for your portfolio. That is because Mutual funds hire full-time, high-level investment professionals. Funds can afford to do so as they manage large pools of money. The managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale. When you buy a mutual fund, the primary asset you are buying is the manager, who will be controlling which assets are chosen to meet the funds' stated investment objectives.
Diversification - A crucial element in investing is asset allocation. It plays a very big part in the success of any portfolio. However, small investors do not have enough money to properly allocate their assets. By pooling your funds with others, you can quickly benefit from greater diversification. Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund unit-holders can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities.
Low Cost - A mutual fund let's you participate in a diversified portfolio for as little as Rs.5, 000, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them.
Convenience and Flexibility - Investing in mutual funds has its own convenience. While you own just one security rather than many, you still enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised. It also uses the services of a high quality custodian and registrar. Another big advantage is that you can move your funds easily from one fund to another within a mutual fund family. This allows you to easily rebalance your portfolio to respond to significant fund management or economic changes.
Liquidity - In open-ended schemes, you can get your money back promptly at net asset value related prices from the mutual fund itself.
Transparency - Regulations for mutual funds have made the industry very transparent. You can track the investments that have been made on your behalf and the specific investments made by the mutual fund scheme to see where your money is going. In addition to this, you get regular information on the value of your investment.
Variety - There is no shortage of variety when investing in mutual funds. You can find a mutual fund that matches just about any investing strategy you select. There are funds that focus on blue-chip stocks, technology stocks, bonds or a mix of stocks and bonds. The greatest challenge can be sorting through the variety and picking the best for you.
Source: business.mapsofindia.com
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