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In: Finance

What are mutual funds and why do so many investors find mutual funds a good way...

What are mutual funds and why do so many investors find mutual funds a good way to invest money? What are the advantages of owning such a fund?

Solutions

Expert Solution

Mutual funds are the trust that pools money from the investors in order to invest them in various stocks, bonds or other securities. The fund is managed by the professional money manager also known as fund manager.

Many investors find mutual funds a good way to invest money because of the return that they have provided in the past which is often more than the return generally provided by the risk free securities. Further because of the time laxity and lack of knowledge people have about the stock market, they generally prefer to invest in stock market through mutual funds.

Advantages of owning such a fund are as follows:

1. Mutual funds are managed by a team of skilled and professionally experienced managers.

2. Mutual funds provides diversification, which often results in to reduction of risk.

3. Generally there is a cap on management fees that the mutual funds can charge from their investors, implying that the investors cant be charge unnecessary fees.

4. Mutual funds are highly regulated which ensures protection to the investors against any fraud

5. The investor who does not have a large chunk of money can also invest in mutual funds.

Feel free to ask in case of any query relating to this question


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