Mutual Funds: Four Things You Should Know

how to use mutual funds

According to the Nigerian Stock Exchange, Mutual Fund is an investment vehicle made up of a pool of funds collected from numerous investors for investing in securities such as stocks, bonds, money market instruments, and similar assets.

How are mutual funds different from stocks?

Mutual funds differ from stocks as they are not traded on an Exchange. Also, investors can buy and sell through a fund manager at any time

Who is a fund manager?

Fund managers are professionals that manage mutual funds. They do this by investing the fund’s capital and attempt to produce gains and income for the investors.

Types of Mutual Funds

Fixed Income Funds – These are funds that are meant to mostly invest in fixed income securities. For this type of mutual fund, there is a fixed return on investment. Examples include Government-issued T-Bills

Equity Funds – These are funds invested in stocks and shares of companies. Equity funds offer high returns, however, it is accompanied by high risks.

Mixed Income Funds – These are a mixture of fixed income and equity funds.

Why Should You Invest in Mutual Funds?

Professional Management: Mutual funds are managed by qualified professionals who invest only after careful analysis of the performance and prospects of different securities

Affordability: You might not be able to buy shares of large companies and corporations, but as a mutual fund investor, you can get started because of the minimal investment requirements. Investors start with as low as N5,000.

Liquidity – You can redeem all or part of your investment any time you wish. 

Regulations – Mutual funds are required to be registered with the Securities and Exchange Commission. They are obliged to follow strict regulations designed to protect your investments

Diversification: Mutual funds are spread across various investment options, reducing risk while enhancing returns.

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