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 kind of returns should you expect from mutual funds?
Imagine asking: how fast do vehicles run?
Can you generalize the answer for the entire category? Different vehicles run at different speeds – even within a category, for example cars, while a car made for city streets can run at a certain maximum speed, one made for racing can run much faster.
There is no product called Mutual Fund, there are many different types of mutual funds. Investment returns across different categories may vary and then there are certain categories of funds that show a higher level of uncertainty in performance.
If the fund invests in a market where prices fluctuate a lot, the net asset value (NAV) of the fund
is likely to witness huge fluctuations (e.g. growth funds investing in the stock market); however, if it invests in a market where prices do not fluctuate much, the net asset value (NAV) of the fund would be fairly stable (e.g. A liquid fund would show much less uncertainty than an equity fund.
An investor would be advised to focus on the characteristic nature of the fund and match it to their requirements.
