Nowadays, mutual fund is getting popular. But many are still unfamiliar how they work. Like any other investment facilities, there are things to consider before investing in mutual funds. Ask yourself on what is your reason on investing your hard-earned money.
Depending on your investment goals and risk appetite, you can select the most suitable mutual fund for you. Just remember the rule of thumb on risk vs. reward. The higher the risk, the higher the return and the lower the risk, the lower the return.
There are three (3) main types of mutual funds.
Equity Fund. A type of mutual fund that is intended for higher growth but higher risk. This is for those people who are aggressive with their investments. About 90% of the funds here are invested in the stock market (blue chip companies) and 10% are allocated in conservative investment facilities like bonds. It is advisable then when you invest in this type of facility, your financial goal should be long-term (i.e. education of the children, buying your dream house, retirement fund). Recommended investment term is 5 years or more so that you can really reap the harvest and maximize the power of money cost averaging.
Balanced Fund. This type of mutual fund put your money in a balance way. It is for the people with balanced risk appetite (not aggressive and not conservative). About 50% of the funds are invested in the stock market (blue chip companies) and 50% are put in the conservative investment vehicles. Mid term investment goals are suitable for this type (i.e. renovation of house after 3 years). Advisable term is 3-5 years to have a reasonable growth.
Bond Fund. This is an investment facility for the conservative type of people. Unlike Equity Fund, the funds are invested mostly in conservative, short-term investment vehicles. The risk is lower compared to balanced and equity but the growth is also lower because only 10% are invested in the stock market (blue chip companies) and 90% with conservative investment vehicles. Short term goals are preferably suggested to be invested in this type (i.e. funds for that planned vacation, yearly tuition fee). Investment term is recommended for 1 to 3 years. People who are nearing retirement are advised to get this type of mutual fund because they might need the money anytime.
I gained these financial concepts in International Marketing Group (IMG). As an affiliate of the company, we give useful financial literacy training and coaching for the people to empower and guide them in the proper management of their hard-earned money.
Just always remember, only invest the money that you can afford to lose because investing has a risk and no guaranteed returns. But though proper financial education and coaching, you can maximize the earning potential of your hard-earned money through mutual funds.
So what type of mutual fund that is right for you? Share your thoughts and meet us in the comments.