The words mutual funds are on everybody's lips but few know exactly what they mean.
Nobody knows exactly whether they are like bonds or fixed bonds or if they are like shares in a company.
Then there are questions that everybody really wants to know; is it possible to become millionaire overnight or to become a pauper by investing in mutual funds.
To find the answer to your queries you must read the following write-up.
An asset management company manages the investment of a group of people who invest money that is pooled together with a common aim.
The common aim can either be to have liquidity or have a regular income or to invest it for long term.
Investors invest in a scheme that suits their specific needs and requirement.
Out of the total funds, the investors pay a small amount to the asset management company or AMC for looking after their interest.
This is the basic tenet for the working of mutual fund.
Small cap investors may not have the necessary knowledge to spread out in various fields that include both debt and equity products.
Small investors looking for equity products generally do not have adequate money to disseminate the risks involved by buying various companies and different forms of security.
Generally, small investors also find monetary resource insufficient to spread among cash, debt, and equity products.
Basically, investment companies that collect money from investors and later sell or buy them back on a constant basis, using the money raised to re-invest in securities of different companies are known as mutual funds.
The write-up gives you an in-depth analysis to all your mutual fund related queries: * If it is possible to diversify investment if invested in mutual funds? * Knowing in details about the working of mutual fund * Find out more in regards to the legal aspect in relation to the mutual fund The New York Stock Exchange listed mutual funds as the most popular of all forms of security in the beginning of the last millennium out numbering all other investment types.
Mutual funds have advantage over other forms of security because it provides diversification and liquidity at a cheaper rate than bonds and stocks.
This is one of the oldest forms of security dating as far back as the 18th century.
Holland was the first country that started this security as early as 1774.
It remains one of the oldest forms of security that people invest in and still maintains immense popularity today.
The reason for popularity is not hard to seek; one of the main reasons behind the popularity is that it is relatively risk free.
The investment of the money of the investors is spread across various sectors and securities, which provide it with insulation from market fluctuations.
This diversification across sectors makes it relatively risk free.
All sectors and all forms of security cannot fail at once.
If a certain security of a company fails then the returns from other sectors balance it out.
If one goes by the performance of mutual funds, the perception that it is risk free is validated.
This is in addition to other advantages that it already has.
If you are a retail investor foraying into the market, you must consider investing in mutual funds.