According to malpf's wealth pyramid, Mutual Fund is at the top part of the pyramid, only below Shares or stock investment. However, the distinct difference between mutual fund and stocks is that stock would require you to REALLY learn 'something' about it before you can "consistently" gain from it. While in mutual fund, you can still gain from it no matter if you know or don't know much about it, almost like a Fix Deposit (well, not exactly).
Basically when you put your hard earn money into mutual fund, you are 'trusting' the fund manager who is certified as profession by your country, will help you maximize return for you. Although such certification could be questionable, but the chances to go wrong is way less than those who are NOT certified.
The key component in a successful company is the boss, the key to a stock is its CEO so the key to a mutual fund is its fund manger. It has been emphasized before that you should follow the fund manager, not the fund itself.
There are only a few key components when investing in mutual fund;
1. Fund Manager : who make the decisions for this fund, have they been performing well ?
2. Objective of the fund : what this fund will and can invest into ?
So if the fund manager or the company is 'somewhat' reputable and the fund's objective matches your own personal view point, you can rest assure to put your money into that fund.
Not as easy as Fix Deposit where you don't need to worry about above 2 questions but 8-12% potential return (mutual fund) is very much higher than 2-5% return (FD). So the effort needed could still be considered low, while the return could be high and continous - as a passive income.
Even if you do not know the fund manager NOR the objective of a fund when you invest into it, it is still NOT as bad as in stocks or businesses. When the right strategies are applied, what you have got yourself into is just lower return as the price of ignorance.
Having said that, its not a totally worry free finance vehicle. These are the common problems of mutual funds which are valid;
1. Expensive or High Fee Charges .... 5.5% is charged when you invest into equity mutual fund, as compare to stock's fee at 0.7% and Fix Deposit at 0% or NO charges. ( read here for comparisons of mutual fund with FD and stocks , compare mutual fund and stock's fee)
3. Unit price can still go down as well as up, so the so called 12% return may not be realized after all.
... and many more ...
There are also many different views on mutual funds ...
1. People who want to get rich, had experience in stocks or properties usually distrust on mutual fund.
2. Some active mutual fund investors buy and sell as often as they can, "keeping the fund will NOT earn us anything", they think.
However, ALL issues raised on mutual fund can be settled with only TWO strategies ...
1. To buy or NOT to buy
... more will or may be posted on each of the concern above ....
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