SHARETIPSINFO >> Articles Directory >>Mutual funds and the risks involved


Traditionally, as we all know, people use to invest their money in the stock market only. However, times have changed and so has the investment world. Especially with the advent of  certain new terms, take for instance the mutual funds, etc, more and more people are now willing to invest in them instead of the stock market. Thus, the share market in the present day is more or less out of the scene. Today the market is being occupied by the newly introduced investment opportunities. However, among all the new investment options, mutual funds happen to be the front runner. As such, the stock market is now losing out most of their customers or rather investors as these investors have suddenly become more interested and inclined towards investing in the mutual funds rather than in the share market. Although a number of reasons can be outlined for such deviations from the stock market, we will only be discussing the most important reason, which is the risk factor. The mutual funds guarantee to its investors the safety of their principle and are comparatively less risky than the stock market. In order to know further regarding the risk aspect of the mutual funds we will have make an extensive study of the mutual funds and the risks involved in investing in it.

A mutual fund is an investment vehicle:
As already mentioned, a number of reasons can be enumerated for such deviations of the people from the stock market but before we go into the more detailed discussions about the mutual funds and its risks, let us at first understand the meaning of the term mutual fund in general. A mutual fund can very aptly be defined as an investment vehicle, but exclusively for the collective investments of people, which enables a large number of savers, to pool in their savings together and thus create a fund, called mutual fund. It is to be noted, that the small investors referred here are those investors who have neither the skill the expertise knowledge nor the time to invest in the stock market successfully. In other words, it is a collective investment; concerning a large number of small savers or investors, who pool their savings together, which is then invested in the diversified portfolios.

It creates a ‘big fund’
Just like in a share market, the investors invest with a view to earn profit, the investors in mutual funds, too invests with a view to earn profit there from. In order to understand the mutual funds better we can take the help of the following example: suppose you have just Rs. 1000 with you, which you have kept aside for making investment. It may fetch you hardly anything if you invest in the stock market.  However, the Rs. 1000, if invested in the mutual funds will help you earn huge profits. This is because, in mutual funds, the Rs. 1000 you had is then put together with the Rs. 1000 each collected from some other investors. Thus, when all the Rs. 1000 are pooled in together from the large number of online stock market investors, it creates a ‘big fund’. This is thus, the basic concept of the mutual fund, based on which we earn profits.

Mutual funds have become the hot favorite:
Mutual funds today, as we all know, have become the hot favorite among all classes of people. Of late, we have also witnessed the growing influence of mutual funds on the lives of the people. Its influence cannot just be seen in the lives of the people but can also be seen in their investment decisions as well. Mutual funds in a few years’ times have successfully improved upon the stock market, so much so, that people today are more willing to invest in the mutual funds than in the stock market. Thus, today the mutual funds have become the talk of the town. The main reason for such attraction towards the mutual fund lies in the fact that the mutual funds are that it involves lesser risk. Thus, this was about the mutual funds and the risks involved


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