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.
Should I invest in an ETF?
ETFs are a low-cost means of gaining exposure to the stock market. They offer real-time liquidity and settlement as they are listed on the stock exchange and trade like stocks. ETFs are a low-risk option as they track a stock index, offering diversification instead of investing in a few stocks of your choice.
ETFs offer flexibility in how you want to trade, such as short selling or buying on margin. ETFs also provide access to a number of alternative investment options such as investing in commodities and international securities. You can also use options and futures to hedge your position that are not available with mutual fund investments.
However, ETFs are not suitable for all investors. Index funds are a better option for new investors who want to experience the benefits of long-term equity investing through a low-risk option. ETFs are also suitable for those who have flat money but have yet to decide how to invest the money. They can invest in ETFs for the time being and earn some return until the money is properly distributed. Choosing the right ETF requires a good understanding of the financial market compared to what most retail investors own. So, a bit of hands-on investment style to manage your ETF investments is a must.