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 firm in the UK.
Are there different funds for different types of goals?
With so many mutual fund schemes on the market, one can often wonder which scheme may be the best. But understanding the meaning of “better” is more important.
Often, people tend to select the “best” performers from a recent past period, patterns that have produced the highest returns in the recent past.
If you watch a movie shot in the United States in December, you’d notice people wearing warm overalls. Some might really like it and want to have it. However, can you imagine someone wearing woolen clothes on the streets of Mumbai or Chennai?
The same logic also applies to mutual funds. There is no such thing as the “best mutual fund” – it’s always about what is appropriate in a given situation and is in line with your investment goal.
For long-term goals there are different funds than for short-term needs. There are aggressive funds that are very different from moderate funds or even conservative funds. There are different funds for income generation than wealth accumulation or cash.
So don’t look for the best: look for the most appropriate.
