Mutual Fund
A mutual fund is an investment vehicle that pools money from many investors to invest in a diversified portfolio of securities like stocks, bonds, and money market instruments. The fund is managed by a professional fund manager who makes investment decisions on behalf of all investors.
How mutual funds work
Mutual funds operate through the pooling of funds from many investors, which are then managed by a professional who invests the money in a diversified range of assets. The value of the fund's per-share market value is calculated daily as the Net Asset Value (NAV), which is used for buying and selling shares. Investors can earn returns through various sources such as capital appreciation, interest, or dividends.
Advantages and disadvantages
Advantages: Benefits of mutual funds include professional management, diversification to mitigate risk, affordability, and liquidity, especially in open-ended funds. They are also regulated, providing transparency and investor protection.
Disadvantages: Potential drawbacks include market risk, which can cause investment values to fluctuate, and various fees and costs that can impact returns. Investors also have limited control over investment decisions, and some funds may charge exit loads for early redemption.
