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 risk my savings in mutual funds?
Everyone wants good returns without taking any risk. But is it possible to earn such a return without even investing your own money? If you’re investing your savings, you should be willing to take the risk of earning a better return than inflation. (To learn how inflation affects your savings, read this article here) This investment could be for some of your future goals such as children’s education, new home, or retirement. However, you may be worried about risking your earned money by investing in mutual funds, when you could have put it in a fixed deposit. And this is a valid doubt.
Mutual funds are known to be risky. They do not guarantee returns such as fixed deposits. But they’re like a cricket match. When the Indian team comes on the pitch, we don’t even know if they will win the game. There is a huge risk of losing, but there is an equally great opportunity to win. Unless the team takes the risk of playing the game, it cannot taste success. The same applies to mutual funds. Unless you risk your capital by investing it, you cannot experience the other side of mutual funds, i.e. the potential to earn a higher inflation-adjusted return than most other options such as FD, physical gold, real estate etc.