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What is a Mutual Fund?
A mutual fund is a pool of money, collected from many investors, that is managed by an asset manager who invests this pool of money in a mix of assets on their behalf. Investors can join the fund by buying certificates.
A mutual fund may include a portfolio of securities including stocks, bonds, fixed income instruments. A fund could consis of each of the following securities type alone or a mix of several types. The funds are managed by asset manager that follow a certain mandate as per a mutual fund’s prospectus.
What is an Asset Manager?
An asset manager is a licensed professional who possesses the right knowledge and skill set to manage mutual funds on behalf of others. The asset manager manages these mutual funds in accordance with clearly formulated investment objectives and rules. The rules dictate things like what assets to invest in, in what proportions and what not to invest in.
How Do You Make Money?
Asset managers invest the fund in order to produce capital gains—profits made from changes in the value of the assets invested in. Other sources of income would also be dividends or interest earned. The fund is subject to both profits and losses depending on the changes in value of the assets that the fund invests in.
Why Choose Mutual Funds?
- Access to more investment benefits due to higher capital.
- Higher diversity of investments within the fund which lowers overall investment costs and risks.