The concept of what is a mutual fund is confusing to a number of people. A mutual fund however is a collective investment scheme. It is managed by a group of investors who invest money in different schemes and gain from its revenue.
Profits gained are usually the driving force behind many people joining a collective investment plan. Collective savings schemes are operated by investment managers who look for the investment plan that is likely to bring back the money invested and its profits easily and abundantly.
There are different forms of mutual funds which include; open-end funds, exchange-traded funds, equity funds and bond funds. The choice of the plan to be used depends on the security of the scheme, rate of return, frequency of investment e. G. Can you increase your investment share on a regular basis or is their fixed time when you can add up your investment.
Security is very important when choosing an investment plan. One is supposed to analyze its former operations before deciding to invest his money in the system. One should also look at the offer of the plan and if the deal is too sweet, think twice. You do not want to find yourself in case where all your investment money has been lost to some con-people who pretended to be investment managers, for instance the case of the Pyramid Scheme in Kenya, where people lost billions through the malicious scheme.
When making a decision on entering an investment plan, one should have enough money to risk it on the system. Not all plans are profitable just on entering the market. One ought to thus have a good money base that will allow him to invest money and not worry about tomorrow if the plan fails. Some times people are carried away by the promises of incredible return and end up investing all their saving without thinking about what will happen if the return is not positive.
A savings plan should be joined out of ones consent, and not through group or peer influence. The consequences of its failure are personal, just like the gains from it. One is supposed to thus make a personal decision about the plan, you can listen to advice from others but the decision is yours alone.
These savings plans can however be a source of steady income if they are successful in the business. You will just invest your money and sit around wait for its returns. You do not have to go and supervise what is going one once you get a good and trustworthy broker. It is a hustle free way for getting an income once you cease employment, especially for people too old to work.
These saving systems can be applied in many kinds of securities. The most common bought securities are stocks, bonds and money market instruments. This is because of their ability to generate returns quickly.
This can however fail to be the case when nations are hit by inflation or depression. It is also difficult in countries experiencing instability. One ought to be careful and plan ahead in preparation of such turn of events. Nevertheless, we cannot rule out the importance of mutual fund in economic growth.