A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment company in the UK.
Are mutual funds suitable for those who do not want to invest in the stock market?
Some people like to play it safe and opt for familiar options. Let’s say you’re in a new restaurant. The menu has exotic dishes, but you still order something familiar just to make sure you don’t regret it later. You can choose a regular ‘Paneer Kathi Roll’ over a ‘Couscous Paneer Salad’ to be on the safe side. But you managed to get a feel for the new restaurant while enjoying its services, atmosphere and food.
Investing in mutual funds is like ordering the right dish on a restaurant menu. If you prefer to stay away from the stock market, you can still choose to invest in debt funds for your financial goals. Mutual funds are broadly classified into stocks, debt and hybrids, solution-oriented schemes, and other schemes based on where they invest.
If you don’t want to invest in stocks via equity mutual funds, you can still experience the benefits of investing in mutual funds through debt funds that invest in bonds issued by banks, corporations, government bodies including RBI, and money market instruments such as business documents, bank CDs, T-bills etc. A debt fund helps you grow your money better thanks to efficient tax returns compared to your traditional choices of bank FDs, PPFs, and post office savings schemes.
