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.
How long should you stay invested in a mutual fund?
One of the most important considerations before choosing an investment route is the expected “time horizon“, i.e. the time in days, months or years that an investor intends to remain invested.
And why is it so important?
All investments should ideally come from a financial or investment plan. Such plans usually indicate how long it would take to reach a financial goal.
Consider an investor who has just earned ₹50 lacs in a real estate transaction. He’s looking for a safe way to invest, before making a final decision on what to do with that money. An ideal scheme in this case would be a liquid fund, which is designed to provide liquidity with a high probability generally for capital protection. He can redeem whenever he decides.
Therefore, the
decision on how long you should stay invested, depends on the investment objective. Investors should periodically review investment status and progress with their advisors. During such reviews, decisions are usually made to redeem, change, invest or leave alone.
