Are Mutual Funds Safe for Investment?

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Are Mutual Funds Safe for Investment?

The primary objective of investing in mutual fund is to make good returns. In the current scenario, the stock markets are doing well. Consequently, the mutual funds are also performing good. This has led to higher attraction for investment in mutual funds. In fact, the tendency of the Indians to invest in gold and real estate has been declining after demonetization . Conceding that, the mutual funds and stock markets has risen sharply.

Meaning of Mutual Fund

Mutual funds are investment vehicles that collect money from different investors. The money is then pooled for making an investment on behalf of the investor. In return, the mutual fund company charges a certain fee.

The primary aim of any investment scheme is to earn good returns. Mutual funds are one such investment avenue that is considered good for investment. Therefore, let us have a look at few reasons that make mutual funds safe for investment.

Reasons to Investment in Mutual Funds

  • Diversification

Mutual funds offer diversification of the portfolio. They invest in multiple stocks or bonds that reduces the risk. Consequently, an investor who invests a small amount in mutual funds gets a diversified portfolio. The investor is also safe from the market volatility.

  • Professionally Managed

Mutual funds is safe because it is professionally managed. The mutual fund companies employ managers and analysts to put the investor’s money in avenues that can give higher returns. The research process in a mutual fund organization goes on continuously.

Mutual funds are the safest for beginners. Naturally, a beginner has no clue about investing his money. His own investment decisions can result in loss of capital. Therefore, mutual funds are the best way through which a beginner can invest. The investor gets a diversified portfolio, multiple investment schemes and professional management.

  • Transparent

Any information about a mutual fund scheme can be found out on their website and prospectus. The mutual fund companies need to disclose their portfolio to the public. Therefore, an investor knows the underlying securities in which the money is being invested.

  • Liquid

Mutual funds are liquid in nature.  To put it another way, if the investor sells his mutual funds today, the proceeds of selling it are available to him on that day itself. This gives an investor the safety and assurance that his funds are available to him whenever he requires them.

The above are some of the reasons why mutual funds is safe and risk-free. However, if the mutual fund company decides to shut down, even then the investor would not lose their money. In fact, in such scenario, the mutual fund shareholders shall receive an amount equivalent to their ownership in the company. This makes mutual funds safe for making an investment.

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