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.
What are the mutual fund interest rates?
There is no free lunch in this world. We pay for every product or service we consume, directly or indirectly. For example, you pay a parking fee for the time you use the parking lot. When you send a courier, you pay the weight of the carrier and the distance they have to travel to reach the recipient. When you borrow money from someone, the lender charges you a fee for the amount and time you borrow. This fee, expressed as a percentage of the principal amount borrowed, is the interest rate usually specified for one year.
Corporations, banks and government entities collect debt funds from the public and distribute this capital in some aspect of their business. They pay a fee for such loans. They issue bonds to raise money from the public and in return pay an interest rate to bondholders, i.e. the fee bondholders need as compensation to invest their money. A bank pays you interest on your savings or fixed deposits. Similarly, companies pay interest when issuing bonds. When mutual funds buy these bonds for their portfolio, they earn interest income. Bond prices are inversely correlated with interest rates, i.e. they always move in opposite directions.