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.
What are liquid funds?
In some cases, the exact time the money should be withdrawn may not be known. What does the investor do? Where should the money be parked?
A few things need to be considered here:
- Money is parked for a short period of time
- It would be preferable that there is no decline in the value of the investment
- Low yields should also be fine, if it means the money is safe
- The period may not be fixed or even known
Given the four conditions above, putting money into a fixed deposit can serve the purpose, but only to a limited extent. One of the great advantages of a fixed deposit is security. At the same time, one of the limitations is often ignored – money can only be parked for a fixed period – there is no flexibility regarding the parking period.
This is where liquid mutual funds could be considered. As is also broadcast in the video, they offer security, reasonably good returns (compared to savings accounts or even very short-term fixed deposits) and full redemption flexibility at any time.
