When it comes to investing, people with busy schedules and low-risk appetite look up to mutual funds.
Though mutual funds are not completely risk-free, it keeps the investor away from the hassles of stock market.
You do not need to rack your brain and follow the index all day along for trading.
You can choose to invest in a mutual fund which will be managed by a fund manager, choose an SIP plan and forget about it till the date of maturity.
The mutual fund is indeed a relatively laid-back instrument of investment. However, it is important to understand the various aspects of fund you are investing in.
You choose a mutual fund depending on your risk appetite, reputation of the fund manager and more as such preferences.
But, it is also important to understand what type of mutual fund you want to invest in.
Mutual funds are either private of public and both the nature of funds has their positive points to look for.
A Private mutual fund is a fund that has limited number of participants (investors). Only 15 investors can access to a private mutual fund.
Since, there are less number of participants, the investment amount are relatively high in these types of fund.
Furthermore, because the shares are not offered to the public, the government does not regulate the Private Mutual Fund. In fact, it is highly leveraged in nature compared to a public mutual fund.
Public mutual funds on the other hand are open to the public. Any number of investors can participate in it.
Public mutual funds are actively managed by the fund managers.
You can start your investing journey in these funds with any amount. It is a feasible investment option for the general public.
To have a more in-depth insight into the difference between these two types of fund, lets compare them on certain parameters.
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Private mutual funds are focused towards earning higher returns on their investments. This is why they tend to be more risky than public mutual funds.
Noth private and public forms of mutual funds carry a diversified portfolio. They invest in pretty much all types of investment instrument.
Both investment in stock, foreign investments, real estate and all those traditional form of investment.
However, the variation lies in the nature of operation.
Private tends to be more risky and aggressive. On the other hand, the public tries to minimize risk and receive returns on a steady rate.
Public mutual fund focus on shares that will eventually offer them higher return without causing much damage.
Type of investors:
Public mutual fund invite anyone who can meet the minimum amount of investment. These funds have relatively a very low minimum amount requirement.
Public mutual fund are feasible to a common person. In fact, any number of people can invest in a mutual fund. There is no restriction on the number of investors a mutual fund has to hold.
On the other hand, private mutual fund are not very flexible in this matter. They have relatively high investing amount.
Therefore, investors who can invest a significant amount and have high-risk appetite are suitable for these types of mutual fund.
In terms of benefits:
Since there is no regulation of government over private mutual funds, they tend to be much more comfortable for the investors and mutual fund as well.
But, because they have no regulation, they also turn to be a risky venture. Still, if you are an experienced investor, you know, the higher the risk is, the greater the returns will be.
You might require good knowledge about the market to keep your investment safe.
Contrarily, public mutual funds are not much of a hassle. A person with basic knowledge about the market can also start investing here.
Public mutual funds tend to be more beneficial to people who look for an easy investment option and do not have a big financial goal.
The bottom line
Both private and public mutual funds have positive points worth considering.
However, the choice of depends on the preferences of an investor and their financial situation.
Private mutual funds are not suitable for people who have low-risk tolerance.
Therefore, make a wise judgement and choose the nature of your mutual fund based on these parameters.