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Mutual Funds| A Story Of Pizza Slices

by Mope's Tales

Howdy, another Thursday with a Financial tip from Mope . Today we're going to be discussing something in investment that many people are sleeping on, I've tried investing in this but I mistakenly added an extra zero and I think I might be in trouble.

Have you heard of Mutual funds before? I haven't, I heard about it this year in my bid to learn more about finances. In all honesty. It's really upsetting to know that subjects like business studies, economics and accounting didn't cater to these needs as young children growing up

So the big question, WHAT ARE MUTUAL FUNDS?

I browsed the internet and here's what I got:

A mutual fund is an open-end professionally managed investment fund that pools money from many investors to purchase securities.

If this is confusing, let's try this:

Mutual funds pool together small amounts from multiple investors and invest the piled up funds in professionally managed assets.

Still find it complex? Let's have an illustration. Remember when we were little and visitors usually gave us #1,000 for flexing . I do, I remember very vividly, I always wanted to buy something really massive for myself but #1,000 wasn't enough. Let's say what I wanted to buy for myself was a new shoe or sandal and it costs #2,000. I go to my other friend Joy and we decide to add her own #1,000 or #,1500, I meet another friend, Nancy and Nancy adds her own money.

I meet all my friends and we're able to raise #14,000. We've all pooled our funds together for a mutual thing we want to buy.

We share the financial burden, and have a good time.

The Tale of Pizza Slices

Another illustration is, Imagine you're at a pizza house, and you begin craving a box of pizza. You walk up to the cashier and all your hopes are drowned when you are told you need #4,000 for a small box of pizza.

You text your friends, "hey guys, let's contribute #5,00 each and buy a box of pizza." And in a few minutes, you're smiling back home with a box of pizza ready to share with your friends.

See how lovely the pizza looks I want one now. If you're led, help a baby girl out

Why is this beautiful?

With all your friends contributing, your craving and your wallet would finally get to cooperate and you and your friends can each have some pizza for the amount you have available. Although you don't have the full amount needed to get a box, by pooling the amounts you and your friends have you still get a slice.

How does this tie back to mutual funds?

Mutual funds work just like pizza slices do. No jokes! Think of it as crowdfunding to get a box of pizza. That makes it possible for everyone to have a slice without paying the full amount. In essence, mutual funds break down large investments into smaller units that everyone can purchase.

What are the common types of mutual funds?

Just as there are various pizza types, we have mutual funds for the varying tastes of investors. Below are the 5 common types of mutual funds.

Equity Funds: These type of mutual funds invest in equities (another name for stocks). Simply, a fund manager brings together cash from multiple investors, and uses the bulk amount to buy carefully selected stocks.

Fixed Income Funds: Fixed income refers to instruments such as bonds. When a mutual fund invests in bonds or similar instruments, it's a fixed income fund.

Money Market Funds: Ever heard of treasury bills? They are the major instruments that make up what is known as the money market. Fund that invest in them are money market funds.

Balanced Funds: Extra servings? You get that with a balanced fund. This type of fund can spread your money between the money market and stocks for example.

Halal Funds: These are special funds that go after investments which practise profit sharing. Such investments don't charge interest rates. Rather, they earn returns from direct profits of the ventures invested in.

I hope I've been able to do justice to this. In a bit to add suspense, I'll be discussing how you earn returns from mutual funds on Monday. Look forward to your eyes moving on here . Till then...