Mutual Funds are portfolio of stocks which are managed by professional fund managers on behalf of their clients. Through mutual funds investors gets the benefits of holding diversified portfolio without investing a large amount in the markets.
It acts as a beginners guide for new investors who do not have any knowledge on the markets and comes with a added big advantages to offer to them. It protects against rapid market losses too. Small Investors do not have enough funds to invest in different stocks and they can only invest in limited single stocks. But with the help of mutual funds they can invest in numerous stocks and maintain a diversified portfolio.
- Mutual funds can be classified into three type’s money market funds, stock funds and bond funds. Money market funds are investments made in money market instruments with the lowest risk factor in it. People do not lose money and the return rate is also low.
- Bond funds aims to produce high yields compared to money market funds with a little more risk and a better rate of return. Risk associated with bond funds are falling interest rates and company bankruptcy.
- Stocks funds are those funds which have the potential for an earning huge profit as well as has high potential risk for earning losses. There can be different stock funds such as growth funds, value funds etc listed in stock markets such as NSE, BSE, NASDAQ etc.
Bell the Bull says: People with limited funds or little stock market experiences are always advised to invest via mutual funds. And as per their risk capability they can choose the funds they want to invest in.