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”.