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 the benefit of staying invested for the long term?
Long-term investing – advice regularly provided by many mutual fund distributors and investment advisors. This is especially true in the case of some mutual funds, such as equity and balanced funds.
We understand why professionals give such advice. What really happens in the long term? Is there an advantage to staying invested for the long term?
Consider your mutual fund investment as a good quality hitter. Every good quality hitter has a certain batting style. However, any good quality hitter would be able to accumulate a lot of runs, if he continues to play for years.
We are talking about the recording of a “good quality” hitter. Any good hitter would go through good and bad performances. On average the record would be impressive.
Similarly, a good mutual fund would also go through some ups and downs, often due to factors beyond the control of the fund manager. An investor would benefit if one stays invested through these funds for long periods of time.
So as long
as you can afford it, stay invested for long periods of time, especially in equities and balanced funds.