.You are a fund fund manager , a student walks in your office to get some...

.You are a fund fund manager , a student walks in your office to get some information about mutual funds. How will you explain mutual fund investment to him? What type of mutual funds will you suggest him to invest him. What type of mutual funds will you suggest for his father who is a 50 year old businessman and his grandfather who is a 75 year old retired individual. (You can look up some available options in Pakistan to make your suggestions).

Expert Solution

Mutual fund investment- Mutual fund is a financial product that pools the money of the investors and invest it into different sectors and stocks. Mutual funds invests diversify the risk by investing the funds into different asset class.

One can invest into mutual funds as lump sum amount or in the form of Systematic investment plan (SIP), A person can invest small amount also in the mutual fund. An investor who invests into mutual fund gets units.

Number of units = Total amount invested / Net asset value of the fund

Types of mutual funds-

Equity fund- Invests mainly into equities, these funds provide higher return but have high risk too.

Debt fund (Income fund)- They invest into debt and fixed income securities, they tend to have lower risk than equity fund and return is also lower.

Balance fund- It is a mix of equity and debt fund. This fund tries to balance the fund's investment with higher return and lower risk.

Index fund- They track the performance of an index. Value of the fund is based on the index performance.

Sectoral fund- They invest into a particular sector or industry such as Pharma fund, FMCG fund, IT fnd etc.

Advantages of mutual fund- Are as following:

Mutual fund is professionally managed, our money is invested based on proper research, done by fund managers.
They provide tax saving as they provide tax saver funds also.
Mutual funds diversify and minimize the risk and maximize the return.
There is flexibility in mutual funds, investment and redemption can be done any time.

Suggestion of fund to 50 year old- He should invest into equity and balanced fund, he will get higher returns in equity fund and in balance fund, risk will be lower and return will be average.

Suggestion of fund to 75 year old- He should invest into debt fund and fixed income security. He is 75 years old so cannot take much risk, by taking into consideration his age, he should invest into debt fund because he will get a regular income and risk will be lower.

jeff jeffy answered 2 years ago

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