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.
Long and short-term investment plans for your choice
Are mutual funds ideal for short-term or long-term investments?
“Mutual funds could be a good short-term savings tool.”
“You need to be patient with your mutual fund investments. It takes time to deliver results.”
People regularly come across both of the above statements, which are clearly contradictory.
So for what period are mutual funds suitable? In the short or long term?
Well, that depends on what your investment goals are, and most goals are time-driven. There are schemes suitable for short periods, there are several schemes suitable for a longer horizon, and then, there are schemes for any in-between period.
Consult your mutual fund distributor or investment advisor, discuss your financial goals, and then decide where you want to invest. For example;
- Capital-oriented mutual funds-– Look for longer periods, typically 5 years and beyond.
- Fixed Income-Oriented Mutual Funds –
- Liquid funds – For a very short period – Less than 1 year
- Short-term bond funds – Medium-term – 1 to 3 years.
- Long-term bond funds – Long-term – 3 years or more