Lately, everyone has been talking about how to generate more passive income in response to the rising costs of living. Well, one good and effective way is to put your money into some kind of investment program. Here in this article we tackle just one type of investment, called mutual funds.
What exactly are Mutual Funds?
A mutual fund is simply an investment concept whereby many people pool their money together and put it under the control of money manager. This money manager’s role is to invest this large sum in various securities like bonds, assets and stocks. Their ultimate aim is to grow the money , produce capital gains and pay you a healthy dividend at certain time intervals.
What are the benefits of a Mutual Fund?
The main benefit of investing in a mutual fund is that you’ll have your money managed by professional fund managers, with decades of experience in the world of bonds, stocks and other securities. You don’t need to spend time managing your investments and doing research. You also don’t have to worry about making wrong decisions.
Mutual funds help you to diversify your investments as the fund managers usually put the money in various fields and industries. This is a safer in case one investment suffers a loss, and the negative effects can be negated by gains from other investments.
Mutual funds also keep things like transaction costs low as a high amount of securities are traded every time. It’s also easy to liquidate your shares as you can request it to be converted to cash rather easily at any time.
How do I start a Mutual Fund investment?
Starting a Mutual Fund account is really easy as all you have to do is visit your nearest bank branch and they will brief you on the steps you need to do. Most banks have a long list of Mutual funds they deal with and the starting minimum investment is pretty low too.
Are there any disadvantages to Mutual Funds?
As with all types of investments, if you choose a high risk mutual fund, you may face the risk of losing capital. In a mutual fund, any loss or profit is shared among all the investors who put their money into the fund, so your earnings or loss depends heavily on the skill of your money managers.
How do I know which Mutual Fund to invest in?
The best way is of course to do some minor research by yourself and keep track of the performance of several stable mutual funds. If you visit sites like Funds Supermart , you’ll be able to see the portfolio and performance of each fund, in an easy to read chart form. You’ll also be able to choose what type of fund you want whether high risk, medium risk or low risk.
Most banks will also have full time investment consultants you can meet with to get advice and proper guidance.