Several first time investors want to understand the concept of mutual funds before they start investing. So Yojak gives them a quick presentation.
A mutual fund is an investment scheme put together by an asset management company that brings together a group of investors with varied or similar interests and invests their money in stocks, bonds and other securities.
Investors purchase mutual fund 'units', which represents their share of holdings in a particular scheme. These units can be purchased or redeemed as required at the fund's current net asset value or NAV.
There are various types of of mutual funds:
Equity mutual funds: These schemes invest directly in stocks and can give superior returns but can be risky in the short-term.
Debt mutual funds: These schemes invest in debt securities. They are safer than equity schemes but provide modest returns and are suitable for short term goals below 5 years.
Balanced mutual funds: These schemes invest in a mix of equity and debt, and an investor must pick a scheme based on his risk appetite.
Liquid funds: They invest a bulk of the money in safer short-term instruments like Certificates of Deposit, Treasury and Commercial Paper.
The benefits of mutual funds are:
These are professionally managed
Provide good diversification thereby hedging risk
Mutual funds provide flexibility and liquidity
Lastly mutual funds are transparent and low cost investment instruments
Convinced of investing in mutual funds, people thank Yojak for the informative session.