What are mutual funds ?
A mutual fund company gathers money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio.
Mutual Funds can be categorized in the following four categories :
- Money Market Funds - have relatively low risks as, they can invest only in certain high-quality, short-term investments issued by U.S. corporations, and federal, state and local governments.
- Bond Funds - have relatively higher risk and high returns.
- Stock Funds - typically invest in the corp stocks.
- Target Date Funds - hold a mix of stocks, bonds, and other investments which mix gradually shifts according to the fund’s strategy. They are also known as lifecycle funds, are designed for individuals with particular retirement dates in mind.
- Professional management of the portfolio
- Diversification of investment
- Affordability of investment
- Higher liquidity