For the Unit 7 Discussion Board, you will write a 250-word minimum descriptive essay about mutual funds

ANSWER

GUIDE TO MUTUAL FUNDS

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

HOW TO INVEST

1. Understand your risk capacity and risk tolerance. This process of identifying the amount of risk you are capable of taking is referred to as risk profiling.
2. The next step is asset allocation. Once you identify your risk profile, you should look to divide your money between various asset classes. Ideally your asset allocation should have a mix of both equity and debt instruments so as to balance out the risks.
3. Then you should identify the funds that invest in each asset class. You can compare mutual funds based on investment objective and past performance.
4. Decide on the mutual fund schemes you will be investing in and make the application online or offline.
5. Diversification of your investments and follow-ups are important to ensure that you get the best out of your investment.

BENEFITS OF MUTUAL FUND

There are many reasons why investors choose to invest in mutual funds with such frequency. Let's break down the details of a few.

Advanced Portfolio Management

When you buy a mutual fund, you pay a management fee as part of your expense ratio, which is used to hire a professional portfolio manager who buys and sells stocks, bonds, etc. This is a relatively small price to pay for getting professional help in the management of an investment portfolio.

Dividend Reinvestment

As dividends and other interest income sources are declared for the fund, it can be used to purchase additional shares in the mutual fund, therefore helping your investment grow.

Risk Reduction (Safety)

Reduced portfolio risk is achieved through the use of diversification, as most mutual funds will invest in anywhere from 50 to 200 different securities—depending on the focus. Numerous stock index mutual funds own 1,000 or more individual stock positions.

Convenience and Fair Pricing

Mutual funds are easy to buy and easy to understand. They typically have low minimum investments (some around $2,500) and they are traded only once per day at the closing net asset value (NAV).? This eliminates price fluctuation throughout the day and various arbitrage opportunities that day traders practice.

WHAT A MUTUAL FUND INVESTS IN -

A mutual fund is formed when an asset management company (AMC) pools investments from various individual and institutional investors with common investment objectives. A fund manager professionally manages the pooled investment by strategically investing in capital assets to generate maximum returns for the investors

CONCLUSION

Mutual funds are a popular investment avenue among investors, as they are easy to invest in and give higher returns as compared to other traditional asset classes such as FDs or saving bank deposits. At the same time, portfolio diversification techniques as well as availability of the options of SIP, STP and SWP make them a viable investment instrument. Further, you are not required to proactively monitor your stocks, as your fund manager does the task for you. As a result, mutual funds have become a much sought after investment avenue today with record investments in the recent months. If you have still not invested in mutual funds, make your investments soon. Happy investing!