Mutual funds are investment vehicles that pool money collected from multiple investors to invest in diverse securities, such as stocks, bonds, and other assets like derivatives. The funds are managed by professional portfolio managers and are typically actively managed.
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Types of mutual funds
There are several types of mutual funds, including:
- Money market funds: These funds invest in short-term, low-risk, high-quality bonds.
- Bond funds: These have a higher risk than money market funds and make long-term investments into bonds specified in the fund’s investment objective.
- Stock funds: These funds invest directly in corporate stocks.
- Balanced or mixed funds: These funds invest in a combination of assets—stocks, bonds, and other funds.
- Alternative investment funds: These funds invest in non-traditional assets like direct infrastructure, derivatives, private equity, non-listed products, etc.
A fund has a Key Information Document (KID), which holds basic information about the instrument, such as its investment objective, fund costs and charges, and historical performance.
Other things to consider before trading mutual funds:
- Leverage: Some mutual funds use leverage to amplify returns, increasing potential risk.
- Pricing: Prices are influenced by market conditions and asset performance, calculated as Net Asset Value (NAV).
- Risks: Include market risk, liquidity risk, and other specific risks.
- Costs: Main costs are ongoing annual fees for managing the fund.
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