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 start investing in mutual funds without a goal?
Mutual funds help you achieve your financial goals over a period of time. Does this mean that you should only consider investing in mutual funds when you have a specific goal in mind and not otherwise? No! Even in the absence of financial goals, they are a good choice for anyone who wants to grow their savings or always stay prepared in case of a goal in the future.
The best sportsmen are those who continue to practice their sport for all seasons. Their preparation begins long before they come to the fore. When they start, they may not even aim for big goals of winning national or international titles immediately. But when an opportunity presents itself in terms of selection for a team, whether in school, college or at the state and national level, they are able to make the most of it only because of their better preparation.
The same goes for financial goals in life. When you start working, you may have no goals beyond meeting your monthly expenses. But it’s best to start investing from the moment you start earning because goals are bound to emerge as you progress through life, both for yourself and your family. When you start investing even without a goal in mind, you are better prepared to deal with various financial demands in life. Also, you become more disciplined when it comes to investing. It takes time and patience to build a corpus and the sooner you start, the better your chances of handling any financial question.