Mutual funds are one of the most popular ways to invest and build wealth. As an aspiring investor, it is important that you know the available types of mutual funds and understand how they work. This article would help you do just that by discussing what they are, how they work, and other things you may want to consider.
What are Mutual Funds?
Mutual funds are a ‘pot of money’ contributed by different investors and are managed by an individual or group. Put in other words, it is an entity that pools cash from a variety of investors for the sole purpose of investing in shares, bonds, treasury bills, and the like. All of these are referred to as ‘portfolio of investments.
Types of Mutual Funds
The types of mutual funds in Nigeria include:
1. Open-Ended Funds
An open-ended fund does not have a limit on the number of shares that can be issued by the fund. Therefore, open Funds are mostly unregulated and are not traded on the floor of the stock exchange.
2. Close-Ended Funds
As opposed to an open-ended fund, its close-ended variant has a set number of shares. The Securities and Exchange Commission as well as the NSE regulates close-ended funds. . Close-ended funds play by the rules set by the regulatory authorities. Their share price is also published daily on the pages of newspapers and can also be found on the internet.
Who Operates a Mutual Fund?
Basically, professional investment firms operate mutual funds made up of people who are money and capital-market savvy. This includes the investment arm of banks, stock brokerage firms, investment banks, and more.
What Makes Mutual Funds Worth It?
People who have not got the time to invest, or have not got foundational knowledge of the capital market? These funds attend to the pain points of these people.
Moreover, it gives them an opportunity to save for the future. By investing in mutual funds, you get an amazing opportunity to invest in a portfolio of rewarding instruments rather than having your money in just one basket. For example, your N250k investment in a single mutual fund can represent investment opportunities in bonds, stocks, treasury bills, and more.
There are many reasons to invest in mutual funds, including accessibility and diversification. On the other hand, these funds offer transparency and build wealth.
Before you decide on which fund to invest in, figure out how it fits with other investments you are already in.
Lastly, the internet has made things easy for you as there are ways to buy mutual funds in Nigeria online now.
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