Why do people invest in mutual funds?


Investing in mutual funds can achieve financial goals. The long-term goal could be, for example, to raise funds for children’s education or safe old age, and the short-term goal could be to raise funds for the initial payment for a car or housing. credit: third party image reference

In the past, small amounts of money were expensive and difficult to invest, but when a lot of people put money into a fund, the total amount is quite large and can be invested effectively. In addition, the fund’s assets are not managed by the participants but by a professional fund manager, so it is not necessary to have in-depth knowledge of investing to become a fund participant, as the manager decides where to invest the fund’s assets. Mutual funds have opened up opportunities to invest for people with small amounts of money and little knowledge of investing. Investing in funds is encouraged by lower brokerage fees, and it is easier to access foreign markets through funds than by investing directly.


How do mutual funds work? When you invest in a fund, you buy a share of it. All the capital raised by investors, or fund shareholders, is invested in securities. Whether this investment is directed to equities or to debt securities depends on the fund’s investment strategy. The investment portfolio manager decides where to invest the funds raised. credit: third party image reference

Each share held in the fund entitles the holder to a share of gross income and to a portion of the securities portfolio. The higher the amount invested, the higher the share of the fund in the investor. The fund shareholder decides for himself how much he wants to invest. Generally, an investor may buy or sell a particular portion of a fund at any time. The price of a fund unit (investment unit, fund share) is determined by the market rates of securities managed by the fund.[2]


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