Dear readers, welcome to another edition of the Global Economic Outlook (G.E.O) - our weekly newsletter providing insights on finance, investment and the economy. In today’s edition, we will be discussing about Mutual Funds.
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What is a Mutual Fund?
There are a lot of financial assets in the world of investment and it can sometimes be very difficult to decide which of them will meet your needs. The truth is that every investment involves a tradeoff between risk and return but there is no guarantee that taking more risk will yield more returns, which is why some people seek investments which are of moderate risk. Mutual funds probably might fit into the moderate risk spectrum but even that depends on some factors.
According to Investopedia, “a mutual fund is a financial vehicle that pools assets from shareholders to invest in securities like stocks, bonds, money market instruments, and other assets.” In other words, a mutual fund consists of investments in various financial assets. Mutual funds are typically managed by professionals who seek to generate returns for investors through an astute management of resources across a diversified asset base.
One major advantage of a mutual fund lies in the pooling of assets because this allows small investors and individuals to have access to assets which they ordinarily might not be able to purchase by themselves and also to benefit from investment expertise as the funds are professionally managed. Another advantage is that mutual funds are usually well diversified which reduces the risk of a drastic loss.
It is important to state that the risk of a mutual fund depends on the investment products it invests in. All-Equity mutual funds will certainly be more risky than fixed income mutual funds. As with any investment, the type of mutual fund you invest in should be a function of your risk tolerance, risk capacity and time horizon.
In Nigeria, there are a lot of companies who offer mutual funds and you can do your research for that. However, remember to always ask what kind of investment products the mutual fund invests in.
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The 8th Live Edition of the Global Economic Outlook (G.E.O) was held on Tuesday, 28th June 2022 with experts discussing the state of the Nigerian economy and how Small and Medium Scale Enterprises (SMEs) can navigate the difficult business environment. It is a must watch!
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If you have any questions or you need help on how to manage your personal finance, please send us an email at info@ecofinar.com.
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