Tags
Balance Fund, Equity funds, Fixed Income Funds (Bonds), Mitigating Risk, Money Market Funds, Mutual Funds, Risk, Risk Investment, Safe investment
The title of this post is a common question I encountered when I am conducting seminars and group study about Financial Literacy.
So is it really safe to invest in mutual fund? My answer depends on your definition of safe.
First of all there is No Risk Free Investment. Different type of Investment has its own associated risk. It only depends on how much risk you can take to define it as safe.
Mutual fund is managed by a fund manager, who are trained to manage pooled money. So with decision making with regards to fund allocation I can say that mutual fund is safe. Mutual Fund is also govern by SEC and have pass with different government strict rules before it could operate and received new funding from investor.
In addition, the money is being held by its associated banks and the money and not by the Fund Manager. Fund Managers only manage the transactions.
Money value of the funds depends on the daily NAVPS of a certain fund. There are days that the NAVPS is low and there are days that NAVPS is high. If the current NAVPS is lower than your purchased cost per unit then you are losing, but if the current NAVPS is higher than your purchased cost per unit then you are gaining. Of course purchased cost per unit includes fees ad other charges of the mutual fund company.
There are different types of Mutual Fund to choose from, they Equity Funds, Balance Fund, Fixed Income Funds (Bonds) and Money Market Funds. There are other type of funds but those mentioned are the common types of Mutual Funds.
Equity Funds has the highest risk while the Money Market Funds has the lowest risk. But you should also understand that the higher the risk of an investment the higher also the potential gain of it.
Before investing in Mutual fund you should asses your goals/objective. If the length of time is short then it is not recommended for you to proceed with risky investment. But if the length of time is long then an investor could go to a riskier investment. (ie. Saving for your 1 year old son college expenses)
I hope this simple post gives you an idea to answer the question mentioned in the title, “Is it Safe to Invest in Mutual Fund?”
Learn first before investing. Happy Investing.
I also believe in the saying, “If your fail to Plan then You Plan to Fail”.
Grace @ Investment Total said:
Thank you for the great information you wrote in this page. I have invested in mutual funds, and now I have the courage to make additional investments. Thank you for this guide. Have a successful financial journey.
Mark said:
I came across this article earlier http://www.pisoandbeyond.com/2014/04/understanding-mutual-funds.html and made me a couple more searches about Mutual Funds. Good thing I found your post, and it made me want to know more, or should I say, finally start investing!! Thanks for sharing!
Ray said:
It’s only dangerous to those who don’t know what they’re doing: Those who can’t tell the difference between an investment and a scam, and those who believed the fund representatives’ sales pitch with inflated returns.
Equity funds are generally good for the long term so it’s most recommended, especially Index Funds. I won’t recommend Money Market funds though since the returns are WAY TOO LOW to be any good (inflation just eats it up).
Anyway, yeah, it depends on your goals/objectives. Want capital to grow? Equity.
Want to have something better than a bank savings account yet still very safe? Balanced or Bond.