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.
In which fund should a new investor invest?
Many people are interested in investing in mutual funds because of their potential to generate a better return than most other long-term asset classes, but don’t know where to start. Because mutual funds are risky, most prospects are skeptical of putting their hard-earned savings into it. They are constantly looking for which fund they should invest in that would give them the benefits of mutual funds without the risk. Because there are no free lunches, we don’t have a zero-risk fund that gives us returns like other mutual funds. But overnight funds come close to this.
These funds invest in securities maturing the next day. Hence, they are highly liquid and carry minimal risk. But it’s hard to generate the much-demanded return you need for your portfolio to serve you in the long term through these funds. If trying small-scale mutual funds before committing your life savings is what you’re looking for, then overnight funds are the answer. But use these funds only if you want to park a large sum of money for a short time or to feel comfortable with mutual funds as an investment option. These are like network training sessions for cricketers before going to a match.
