There is money to be made in mutual funds, but investors fall into several pitfalls that keep them from maximizing their profits when investing in funds. Getting too focused on short-term results can be a big problem. As with individual securities, chasing performance can be a large negative when buying mutual funds.
Mutual Funds typically have an investment band depending on the nature of the fund. Some can be as low as a minimum of N5,000, whilst some can be N100,000 and others N1,000,000. Mutual Funds afford people who do not have the time to invest in the money and capital market or do not know much about the business of buying and selling securities an opportunity to invest and make money. It also gives them an opportunity to save for the futre. By investing in mutual funds you have an opportunity of investing in a portfolio of heterogeneous instruments rather than having your money in just one basket. For example, your N100k investment in a single mutual fund can represent an investment in bonds, stocks, treasury bills etc.
Mutual funds provide an important platform for investing. Investors who choose not to bother with the challenges of stock evaluation and selection, for instance, can use this more stream-lined option: you simply invest in a mutual fund and leave the headaches of portfolio construction and management to the investment company. Indeed, given that a large number of the investors in economy may not be thoroughly equipped for the intricacies of the markets, it is a big surprise that mutual funds have not shown as a viable channel for investing.
Like a every other business Mutual Funds are also exposed to the same risk and rewards that can determine whether they make or loose money. But since no business originally sets out to loose money they will often tell you that they are profitable. However, you can know how profitable a mutual fund is or can be if the fund owners already have a history. Most of the managers already have experience in running funds and so must have track records of their performance in the past. It is also important that you look at what type of returns they intend to offer to their investors. When it comes to buying a mutual fund, you must do your homework.