Question

Let's go back to your long lost rich uncle who passed away in weeks 1 and 2 discussions. He left you $50,000, and you looked at investing money is several different ways. This week let's consider one last investment option - mutual funds. There are far too many mutual funds for me to ask you specifically which one you might choose. Instead, tell me your preferred investment option and why. Consider money market instruments, individual stocks, or mutual funds.

Response must be at least 250 words.

Answer 1

Answer

I would choose Mutual Funds because i am more of a risk averse investor but expect good enough returns to make a living. Mutual funds can give returns which are surely greater than Fixed Deposits. Mutual Funds are quite safe as all the investment activities are taken up by experts of these huge mutual funds and after due study of each and every bond/ share/ money market instrument etc.

However, buying individual stocks is quite risky as diversifying with a limited amount of money in hand is really not possible. Thus, risk is increased when we invest in 3-4 types of stocks. On the other hand, a mutual fund would invest in large number and types of shares/ bonds etc. , ensuring that the portfolio is well diversified.

At the same tie other types of instruments such as Debentures are completely risk free but at the same time do not offer very high returns in terms of interest. Mutual funds have a much higher chances of giving better returns.

I believe it completely depends upon the risk taking appetite of a person whether he/ she wants to invest in shares/ government bonds/ debentures/ mutual funds etc. Also, the amount of Financial knowledge that a person possesses also help in taking such decisions of where to invest and where not to invest. If a person does not have too much knowledge about finance, one must not take too many risks and prefer investing in mutual funds only, where experts invest money on our behalf.