These offer flexible terms of investment as one can enter or pull out of them as and when they deem correct. They offer phenomenal returns on investment too. Looking at the history of their performance, one can easily understand that there have been many investors who turned into millionaires from nowhere simply by investing in stock. However, there is the flip side to it also.

The stock market is highly unpredictable. Stocks which have performed today necessarily do not perform tomorrow and hence if anyone remains invested in them they stand a chance of losing on the profits as well as the investments too. The stock market is highly volatile which means that small events anywhere in the world are capable of affecting the company’s performance and hence the stocks.

Experts and the so called stock gurus are also not sure about the movements of the stocks. They therefore suggest that investors should never park all their funds in one or two stocks; rather they should in different stocks and in companies belonging to diversified sectors. One should always be on the watch out for the news and the stock performance and should take their decision to stick to or pull out of the stocks accordingly. Small investors do not have ample money to invest in different stocks, hence they have a portfolio restricted to only one or two of the stocks thereby exposing them to greater risk.

Mutual funds accumulate or pool the funds of different investors. The collected funds are re-invested in stocks and companies in the diversified sectors .This mitigates the risk of the investors and also allows them to own a diversified portfolio with small investments. Lets understand the way to invest in mutual funds and how are the funds allocated. Assuming that an investor makes an investment of $1000 towards the mutual funds, this fund is pooled with the investments of the other investors. This for $1000 only the small investor may become a partner to many companies in diversified sectors by means of their stocks.

Why invest in mutual funds? If one intends to invest in the stock of a company they require an extensive study of the financial and the fundamentals of the company and its performance in the past and growth plans in the future. With mutual funds it becomes the duty of the fund manager to research and take investment decisions on behalf of their clients and provide a better return at the end of the investment tenure.

Mutual funds which are no-load funds allow the clients to enter the fund without any fees. Thus if anyone who is new to the investment sector, does not have the understanding of the financial market dynamics and above all wishes to start with small investments ; mutual funds offer the most ideal instruments for investments. One can just sit in the comfort of their homes and watch their money grow with time with minimal risk and average returns once they invest in mutual funds.

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