The investment objectives of a Mutual fund specify the class of securities a Mutual Fund can invest in. Mutual Funds invest in various asset classes like equity, bonds, debentures, commercial paper and government securities.
A Mutual Fund is a body corporate that pools the savings of a number of investors and invests the same in a variety of different financial instruments, or securities.Mutual funds really captured the public’s attention in the 1980s and ’90s when mutual fund investment hit record highs and investors saw incredible returns. However, the idea of pooling assets for investment purposes has been around for a long time. Here we look at the evolution of this investment vehicle, from its beginnings in the Netherlands in the eighteenth century to its present status as a growing, international industry with fund holdings accounting for trillions of dollars in the United States alone.
Since their creation, mutual funds have been a popular investment vehicle for investors. Their simplicities along with other attributes provide great benefit to investors with limited knowledge, time, or money.
One rule of investing that both large and small investors should follow is asset diversification. Used to manage risk, diversification involves the mixing of investments within a portfolio. For example, by choosing to buy stocks in the retail sector and offsetting them with stocks in the industrial sector, you can reduce the impact of the performance of any one security on your entire portfolio. To achieve a truly diversified portfolio, you may have to buy stocks with different capitalizations from different industries and bonds having varying maturities from different issuers. For the individual investor this can be quite costly.
By purchasing mutual funds, you are provided with the immediate benefit of instant diversification and asset allocation without the large amounts of cash needed to create individual portfolios. One caveat (beware), however, is that simply purchasing one mutual fund might not give you adequate diversification – check to see if the fund is sector or industry specific. For example, investing in an oil and energy mutual fund might spread your money over fifty companies, but if energy prices fall, your portfolio will likely suffer.