What is Mutual Fund?
Sunday, March 16th, 2008Mutual Fund (a.k.a. Unit Trust Scheme) is an investment vehicle for people without the Time or/and Resources to invest in the stock/ share market indirectly by paying a fees (some without fees) to a professional fund manager in return for a profit.
Mutual Fund usually involves three parties, i.e. a Unit-Holder (Investor), a Fund Manager and a Trustee. All three parties have different roles to play in this investment relationship.
Let’s talk about Unit-Holder. A unit-holder put in her capital together with other unit-holders with the same investment objective to form an investment pool of fund. This pool of fund is then invested in a group of shares/ stocks or other assets (e.g. bonds, fixed income instrument etc.) in return for a profit.
A Fund Manager role is to manage this pool of fund by investing in different asset groups on behalf of the Unit-holders. As for Trustee, her role is to make sure the fund is being managed according to a ‘Deed’ that spells out all the detail of the Mutual Fund Scheme. In other words, the Trustee is like a guardian of the Unit-holders to make sure the Fund Manager manages the Fund accordingly.
Though there are different opinions regarding Mutual Fund whether is it a good or bad investment, my personal stand point is if you lack the time or/and resources to invest in the stock/ share market directly, mutual fund might be your next best alternative to achieve above-average returns as compare to savings in the bank and fixed deposit.