Advantages of Investing in Mutual Funds!!!!

What is a mutual fund?
Mutual fund as the name suggests,refers to fund that is raised and invested mutually, i.e. on behalf of everyone participating in the scheme. Mutual funds, unlike companies do not take the risk of directly investing in a business.They,however invest in other companies that take the risk of doing business.

Types of mutual funds:
Mutual Funds are broadly classified into three categories viz. Equity Funds, Debt Funds and Balanced Funds.
Equity funds invest a major part of their corpus in equities.Though Equity funds give the highest returns,they also have the highest risk factors and should be considered for long term investment.

Debt funds invest a major portion of their corpus in debt papers. Government authorities, private companies, banks and financial institutions.

Balanced funds as the name suggests, are a mix of both equity and debt funds. They invest in both equities and fixed income securities.

Advantages of investing in mutual funds:
1.Investing requires professional expertise.Any person with surplus capital can be an investor,but he does not possess sufficient skill to professionally manage his investment.Mutual funds help investors by providing them with a qualified fund manager.
2.There is an old saying, Don't put all your eggs in one basket'.In this context,it means diversification of investment to minimize the risk associated with investing in a single security.Mutual funds help you in diversification since it invests in hundreds of different securities.
3.Since mutual funds collect money from millions of investors, they are able to offer you a lower cost for managing your funds.
4.They also offer a reasonably good liquidity and are also comparatively easier to apply.
5.They do a balancing act between the risks associated with investing directly in the market and the lower rates of returns offered by securities like government bonds,fixed deposits of banks and other financial institutions,etc.i.e. they offer comparatively higher returns with a lower risk factor.