What are Mutual Funds and how are they useful to investors?

Investing is no joke even for wealthy because it has the power to not only grow wealth but to destroy it as well if not dealt with care. Another point to be noticed is that amount of funds available is very much relevant. Possibly one may think how does the amount matter. If you observe the stock prices, you would notice there are a wide range of prices you can choose from. Invariably, most of the bluechip stocks would be priced on the higher side. In such a case, even if the investor buys one share, he has to throw a high price on it. This may not be affordable to all categories of investors as some would have small amounts of money. Above all, investing is an art requiring time. One needs to patiently draw up a plan most suited for himself/ herself. Clearly, the three important essentials that one needs to possess are:
 

• Funds : Affordability of price is critical here in this context and not just availability
• Financial awareness (Competence/Expertise) : Ability to understand or comprehend the dynamics of the investments
• Time for planning and implementation

The above mentioned points would be sufficiently capable of giving you a better understanding of what Mutual funds are.

Knowing the three essentials, it is time now for assessing which of these three do we possess as investor. This would lead to the realisation that definitely the one essential that all the investors would possess is Funds (surplus). Here again the question arises whether they can afford to pick up their investment choices and whether the prices of their choices fall within their affordability criteria.

 

Talking about Financial awareness, one may or may not be competent in planning and implementing a strategy of investment for themselves. Even if one is competent, there is another factor that has a bearing on the whole issue of financial planning which is nothing else than the third essential point that has been mentioned above.

 

Yes , need for time to plan your investment cannot be overlooked. A large part of investors are engaged in their professional pursuits and the money that they earn is where the funds come from. They would find time insufficient for involving themselves in planning, implementing and constant monitoring of their own investment portfolios.

 

Mutual Fund is a professionally managed pool of numerous small investments which add up to a large sum of money. The Fund managers have the responsibility of the planning, implementing and monitoring the investment portfolio. Fund managers are full time dedicated on managing the fund and receive remuneration for the same from the sponsoring team of the Fund. Apart from this, they are highly qualified professionals in the field of finance and therefore are well versed with the way a fund is to be managed. Another unique aspect of the fund is that the entire fund is divided into small affordable units thereby enabling the small investor to participate even in highly priced bluechip stocks by the ways of investing in Mutual Fund units. A fee is charged collectively to the investors to meet the expenses of operating the fund which includes the remuneration of fund managers and other employees. With these characteristics, Mutual funds provide in totality all the three essentials of Affordability, competence / financial awareness and time.