Mutual Funds are one of the most popular form of investment option for salaried individuals. You basically put your money on the stocks, goad, real estate or any other form of assets but you don’t have to choose which stock to invest in. There are different Mutual Fund options which are operated by money managers and fund managers.
Mutual funds are a form of products which are created to provide good returns to the investors and eventually create wealth. As mentioned earlier, the money is collected from various investors and all that money is then used by an experienced person (mutual fund manager) for investment on various stocks and debt instruments.
There are different kind of Mutual Funds depending upon which type of investment is made using the money.
For example, equity mutual funds will invest in equities(stocks) and debt mutual funds will invest in debt instruments like bonds. Balanced and hybrid mutual funds will invest in both equities and bonds.
Equity-based mutual fund funds are further divided into various categories. For example, one of the categorizations is on the basis of company market capitalization into large-cap, mid-cap, small-cap, multi-cap, etc. Debt funds are divided into short term debt fund, long term debt fund, ultra short term debt fund, liquid fund, etc.
Each category of mutual fund has a different risk vs return profile. For example, equity mutual fund provides a higher return than debt mutual fund but the risk is also high. Risk is in terms of volatile returns.
You might wonder why you will choose to invest in Mutual Funds when you can directly invest in stocks but there is a very simple answer to that. With direct stock trading, there is a big risk involved when you don’t have enough knowledge about it. And not everyone can have sufficient information to invest in stocks directly.
Now, with Mutual Funds, not all your money is invested in a single stock. Your money is invested in diversified stocks, so there is minimized risk and steady return.
If you are looking to get high returns in quick time, then Mutual Funds is not the best option for you. But if you are looking for steady return with lesser risk then Mutual Fund is the best option.