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 is inflation?
Simply put, inflation is the rise in prices over time, relative to the money available. In recognizable terms, a certain amount of money buys you much less today than it did years ago.
Let’s use an example to understand it better. Let’s say you buy a grilled sandwich today for 100 INR. Annual inflation is 10%. Next year, the same sandwich will cost you 110 INR. If your income also doesn’t increase at least according to the rate of inflation, you’re not able to buy the sandwich or other similar products, right?
Inflation also tells investors how much return (%) their investments must make to maintain their current/current standard of living. For example, if investments in “X” returned 4% and inflation was 5%, then the real return on investment would be -1% (5%-4%).
Mutual funds give you investment options that have the potential to give inflation-beaten returns! You can aim to protect your long-term purchasing power by investing in the right kind of mutual funds.