Mutual fund basics

Have you ever thought, I want to earn 7% return on my investment. Wait..CD only gives me 0.50%, yikes. If wishes were horses, beggars would ride!

Mutual fund (MF) is an investment tool for an investor which is professionally managed by investment companies. It is a collective scheme that is regulated, available to the general public and open-ended in nature. Every mutual fund declares its strategy, vision, investment pattern and follows that strongly.

I invested in MF when I was 14. Surprise! I had my piggy bank, and saved every penny that my grandma used to give me. Indeed it was a very small amount at that time, which is now tripple in 13 years from that. Yes, I’m 27!

We discussed a little about the bond fund earlier. A Bond invests in bond and other debt securities. Which is why its safer and very conservative investment style. All major investment companies such as T. Rowe PriceVanguardFidelity have bond funds into their portfolio. It typically pays dividend on scheduled intervals. Also you may earn NAV change as well.

If you are willing to take more risk, there are MFs available that pay higher returns. They invest in stock, commodities, foreign exchange, multiple specific sectors and so on.

The biggest advantage of investing in mutual funds is, instead of leveraging on one specific area, you can diversify your own investment.