Mutual Funds: is better than SIP?

A mutual fund is an investment type that pools money from different investors to invest in a spread collection of stocks, bonds, money investment and other properties.

1. Key Features:

• Professional Management: Funding mangers make investment decisions and also manage the funds correspond to investors.
• Diversification: In mutual funding, invest in a different type of securities which reduce the risk to loss one property that performing poor.
• Liquidity: Mostly mutual funds allow investor to buy or sell shares on any day.
• Affordability: Mutual funds allow minimum investment plans that make easily access to small investors.
• Regulated: Mutual funds are matter to regulation design. In U.S., they regulated by Securities and Exchange Commission (SEC).

2. How it work?

Investors purchase shares on mutual funds, the money gathered from all investors make a pool. The fund managers use this pool to buy different properties.

The performance of a mutual fund is measured by its NAV that can calculated by:

                           Total market value of Fund’s Assets – Liabilities

NAV= ————————————————————————-

                                   Number of Outstanding Shares.

3. Types of Mutual Fund:

• By Asset Class:

1. Equity Funding: Invest in stocks. High risk include in it but generates high growth potential.
2. Bond Funds: Invest in fixed amount that include low risk
3. Money Market Funds: Invest in short time

• By investment:

1. Growth funds
2. Income Funds
3. Index Funds
4. Sector Funds

• By Structure:

1. Open Ended Funds
2. Closed Ended Funds
3. Exchange Traded Funds

4. Advantages:

• Diversification
• Access to Professional Management
• Ease of Investment
• Automatic Reinvestment
• Transparency

5. Disadvantages:

• Cost: Mutual fund include management fee and working cost. It also charge fee during purchasing and selling.
• Lack of control: Investors have no control in individual decisions.
• Market Risk
• Over-Diversifications

6. How to invest in Mutual Funding:

First, you have to decide a financial goal, risk and investment. Then chose fund that fill your need. You can invest through many options like Fund Companies, Financial Advisor and Brokerage Platforms. Many funds give Systematic Investment Plan (SIP).

7. Conclusion:

Mutual fund is an excellent options for investors to make wealth. They offer many choices that depends on risk levels, cost, and financial goals.