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.
Should the goals be only long-term or short-term?
Narendra aims to accumulate enough to make the down payment for the house of his dreams. He initiated a SIP in some mutual fund schemes. Although he was a little low, he was comfortable with what he had accumulated.
He had a pleasant surprise when his company announced a big cash reward for some star employees, and he was one of them.
While buying the house would take some time, he wasn’t sure how long. Payment can also be scheduled for a period.
What could he do with the money?
His advisor suggested liquid mutual funds as they are ideal when money is needed in a short period, and still the time period is uncertain. It also gives you the flexibility to pull out even some of the money or all when needed.
So there are broad mutual fund schemes for both long-term and short-term goals.