Friday Fact: Mutual Funds “Make Investing Easy”

29 Jul 2022

What is Mutual Fund?
In order to invest in securities such as stocks, bonds, money market instruments, and other assets, mutual funds combine the funds from shareholders. Professional money managers run mutual funds, allocating the assets, and attempting to generate capital gains or income for the fund’s investors.

Benefits of Mutual Fund

  • Investing is incredibly simple with mutual funds, and you can often automate it. They can be held in a variety of accounts.
  • Due to their inherent diversification, mutual funds are a less volatile investment.
  • You might not have to worry about continuously purchasing and selling shares when you invest in a mutual fund. Instead, the fund manager takes care of everything.
  • Profit reinvestment is also another benefit of mutual funds.

Types of Mutual Fund:

  1. Money Market Funds – These funds make investments in treasury bills, commercial paper, bankers’ acceptances, government bonds, and other short-term fixed income securities like bankers’ acceptances, commercial paper, and certificates of deposit.
  2. Fixed Income Funds – These funds invest in securities like government bonds, investment-grade corporate bonds, and high-yield corporate bonds that have a fixed rate of return.
  3. Equity Funds – These funds make stock investments. These products often carry a larger risk of loss since they strive to increase more quickly than money market or fixed income funds.
  4. Balanced Funds – These funds make a combination of investments in fixed income and equity securities. They attempt to strike a balance between the desire for greater returns and the possibility of financial loss.
  5. Index Funds – These funds try to optimize a specific index’s performance such as the IDX Composite. The mutual fund’s value will fluctuate along with the index’s value.
  6. Specialty Funds – These funds concentrate on specific mandates like investing in real estate, commodities, or socially aware companies. For instance, a socially aware fund might invest in businesses that support diversity, human rights, and environmental responsibility while avoiding businesses that deal with alcohol, cigarettes, and many more.
  7. Fund-of-Funds – These funds purchase shares of other funds. They aim to simplify asset allocation and diversification for investors, just like balanced funds do.

 

 

References:
Hayes, Adam. (2022). Mutual Fund. Retrieved from https://www.investopedia.com/terms/m/mutualfund.asp
Ontario Securities Commission. (2021). 7 Common Types of Mutual Funds. Retrieved from https://www.getsmarteraboutmoney.ca/invest/investment-products/mutual-funds-segregated-funds/7-common-types-of-mutual-funds/
Haegele, Bob. (2022). How to Pick the Best Mutual Funds: 7 Essential Tips for Beginners. https://www.bankrate.com/investing/how-to-pick-best-mutual-funds/
Edwards, John. (2021). Trading Mutual Funds for Beginners. Retrieved from https://www.investopedia.com/articles/investing/092915/trading-mutual-funds-beginners.asp#:~:text=Mutual%20funds%20are%20often%20attractive,a%20single%20comprehensive%20investment%20vehicle
Edwards, John. (2021). Mutual Funds: Pros and Cons for Investor.  Retrieved fromhttps://www.bankrate.com/investing/mutual-funds-advantages-disadvantages/
The Investopedia Team. (2022). Why Would Someone Choose a Mutual Fund Over a Stock? Retrieved from https://www.investopedia.com/ask/answers/05/062305.asp#:~:text=A%20mutual%20fund%20provides%20diversification,is%20known%20as%20unsystematic%20risk