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.
Why invest through mutual funds and not directly in stocks or bonds?
Yes, it is “through” mutual funds and not “in” mutual funds. What’s the difference?
You can indulge in buying and selling stocks and bonds from time to time, but taking the help of mutual funds to manage your investments can be a much better idea.
When investing through mutual funds, invest in stocks, bonds or other investments indirectly with the help of professional managers. Instead of doing your homework yourself, you pay a small fee and use the services of a fund management company. These services include not only the research, selection and buy-sell of various investments, for which a fund manager is well qualified, but also accounting and administrative tasks related to the task of investing, which many may not want to do on their own.