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 should you invest in an ETF?
If you’re looking to invest in stocks but don’t have the time and research skills to choose the appropriate stocks for your portfolio, ETFs are a great savior! ETFs help you participate in the stock market much more easily than investing in individual stocks without compromising liquidity. They offer greater diversification at lower costs than direct equity investments.
An ETF or exchange-traded fund
is a type of exchange-traded mutual fund and can be traded in real time like any other publicly traded stock. Since ETFs are a type of mutual fund, their portfolio includes a basket of securities that mirror the composition of a market index. Thus, you can invest in selected stocks that are part of a market index without having to spend your time and energy researching to select a few stocks. ETFs are affordable not only compared to equity investments, but also to other categories of mutual funds due to their low expense ratio.
ETFs are also available in the bond market, allowing you to gain exposure to the debt asset class just like any debt mutual fund. You can cheaply invest in a wide basket of corporate bonds or stocks depending on your investment needs and trade them just like stocks or bonds.