Mutual funds are the upcoming mode of investment and they have become famous in the recent years. These are the mode of investment public is inclining towards and looking to invest in them but there are as usual few questions that a new investor has in mind. The first and the foremost that arises is what is a mutual fund?
Mutual funds are a mode of investment in which company takes in money from the people and invests in stocks in the share market. The money taken is from a large number of people thus it pools in money and invests in the stock market. In this process since the investor is not the sole investor thus he/she is not entitled to the entire profit earned by the share. The profit earned is divided among the various investors. This also has a huge benefit, since the investor is not the sole person investing hence if the stock takes a hit in the share market then he/she doesn’t has to bear the complete loss. It’s like eating an orange, the investor gets just a piece and if that turns out to be sour then he/she doesn’t have to bear the whole fruit.
Mutual funds are a lot different from the original stocks of the stock market. The stocks of the stock market are everything which the mutual was designed as an evolved substitute of yet they are very different from each other. The company stocks are an investment in which there is no certainty along with that there is huge risk of the investment going to loss. The stock market investment has a sole investor and he is either to reap the whole profit (which lucrative in a sense) or in case of loss has to bear the whole of it (which turns out to be a huge pain).
Stock markets in their investment mode are an investment in which the investment is dealt in one company in a share but when we talk about mutual fund then that is not necessary as the mutual fund investment manager may invest in many number of share with the pooled in money he has at his disposal. He may invest in high risks- high return schemes and reap huge profit from them.
The NAV or the Net Asset Value is one another thing that shows the difference between the original company stocks and the mutual funds. When we talk about the company stocks then the stocks are available at prices which are given in the stock markets which are determined by how the company is expected to perform in the coming future and how it has performed in the past. It is available at prices mostly higher than the book value which is the NAV. When we talk about mutual funds then there is no such thing as higher value or lower value in terms of purchasing and the funds are available at the book value which is the NAV or the Net Asset Value.
Other than this, mutual funds have more certainty of earning profits than the stock market investment and the risks of even the high risk – high return mutual funds is considered lower than the stock market investment risks. If you are assured about the fact that mutual funds are a good choice, you can click here to check out the best portfolios that people invest in.