What is Mutual Fund? What are Mutual Funds?
A mutual fund is an investment instrument created by many investors coming together for a specific purpose and managed by a professional portfolio manager. Mutual funds provide various advantages to investors. Some of these are those:
- Mutual funds offer investors the opportunity to diversify their portfolio. Thus, investors can distribute risks in different markets and sectors without depending on a single investment instrument.
- Mutual funds provide professional management services to investors. Investors can trust the decisions of an expert portfolio manager without having to follow and analyze the markets.
- Mutual funds provide liquidity to investors. Investors can buy and sell mutual fund participation shares whenever they want. In this way, they can easily meet their cash needs.
- Mutual funds offer tax advantages to investors. Gains obtained from the purchase and sale of investment fund participation shares are not subject to withholding tax. However, the gains obtained upon exiting the investment fund must be declared in the income tax return.
Mutual funds are divided into different types according to the assets they hold in their portfolios. These types are:
- Stock funds: Funds where at least 51% of the portfolio consists of stocks. Stock funds are funds that have high return potential but also carry high risk.
- Bond and bill funds: Funds with at least 51% of the portfolio consisting of bonds and bills. Bond and bill funds are funds that provide fixed returns but carry low risk.
- Mixed funds: These are funds whose portfolio consists of both stocks and bonds in certain proportions. Mixed funds are funds that offer moderate levels of return and risk.
- Liquid funds: Funds where at least 80% of the portfolio consists of government securities or money market instruments. Liquid funds are funds that provide low returns but carry very low risk and are suitable for those who want to make short-term investments.
- Gold and other precious metals funds: Funds whose portfolio consists of at least 51% of gold or other precious metals or capital market instruments based on them. Gold and other precious metals funds are funds that are suitable for investors who want to benefit from the increase in the price of gold, but are subject to fluctuation.
- Sector funds: Funds where at least 51% of the portfolio consists of stocks belonging to a specific sector. Sector funds are funds that are suitable for investors who want to achieve high returns on a sector basis but also take sector risk.
- Foreign securities funds: Funds with at least 51% of the portfolio consisting of securities issued or traded in foreign countries. Foreign securities funds are funds suitable for investors who want to benefit from opportunities in foreign markets but also accept exchange rate risk.
- Fund basket funds: Funds where at least 80% of the portfolio consists of participation shares of other investment funds. Fund basket funds are funds suitable for investors who want to benefit from the return and risk characteristics of different types of investment funds.
- Index funds: These are funds whose portfolio consists of stocks that follow a certain index. Index funds are funds suitable for investors who want to achieve a performance parallel to the index return.
- Variable funds: These are funds whose portfolio structure and management strategy are not bound by any specific rules and can change according to the initiative of the portfolio manager. Variable funds are suitable for investors who trust the competence and flexibility of the portfolio manager.
Mutual funds can be a suitable option for anyone looking to invest. However, when choosing an investment fund, you need to consider factors such as your investment purpose, risk tolerance, expectations and maturity. It will also be useful to examine the mutual fund's past performance, management fee, trading commission and other expenses. You can look at our other topics to get more information about investment funds.