Why Mutual funds remain the investment of choice

Mutual funds is an investment instrument designed mainly to gather the capital of individuals or entities that may not have the financial muscle to unilaterally plunge into the capital markets. It is also crafted to meet the needs of individuals or organisations who are interested in financial investments but lack the technical knowledge required to navigate the intricacies of the market. With mutual funds, these individuals can gather their money into a pool in the custody of seasoned financial experts who decides what instruments to invest the pool. Each individual that contributed to the pool has ownership stake in the fund in proportion to his contribution to the fund.
We have various categories of mutual funds, owing to the various assets they're invested in.
• Money market fund: These funds are mostly used in purchasing short term securities. Examples of such securities include Federal Government treasury bills, certificate of deposits, municipal bonds etc. A considerable proportion of money market fund is invested in treasury bills. Interest earned on the investment is distributed to members of the investing public that purchased units of the fund, otherwise known as unit holders. Unit holders may choose to cash out the interest or reinvest it in the fund. By so doing, they reap the benefits of compounding interest. Interest is mostly paid every quarter.
• Equity income fund: This fund is mostly invested in quoted stocks. The fund manager selects stocks with the best yield for unit holders and invest in them. Dividends accruing to the fund is distributed to unit holders. When profits are made from the sale of stocks, the Net Asset Value of the fund increases. This leads to capital appreciation for unit holders.
• Fixed income fund: This fund is mostly invested in banks fixed deposits. Mouth watering interest is earned which is distributed to unit holders according to the size of their holdings.
Mutual funds can still be categorized on the basis subscription period. They are:
• Open-End mutual fund: This fund allows Investors or unit holders to enter and leave the scheme at any time. The fund is thus ready to offer or redeem the units at any time based on their current asset values.

• Close-End mutual funds: Subscription to these funds have opening and closing dates. They are not open to new investors once subscriptions close. However, they can be traded on the floor of recognized stock exchange.
Mutual funds offer immeasurable benefits to unit holders, making it the best investment instrument for the youths. Below are some of the benefits.
• Low capital requirement: One factor that scare most young investors is the high capital requirement for financial investments. Most stock brokers require a minimum initial deposit of between One hundred thousand naira to Five hundred thousand naira for investment in blue chip stocks. Same with purchasing of treasury bills. These amounts are far beyond the reach of most Nigerians who are interested in financial investments. But with mutual fund, one can open a money market account with as little as five thousand naira. Moreover, an investor can choose to invest a lump sum or in installments.
• Mutual funds are regulated by Securities and Exchange Commission(SEC). This commission provides the regulatory framework that put the fund managers in check to ensure the safety of investors fund. They determine the minimum standard of operation for the fund and monitor their activities closely. Investors can petition their fund manager to the SEC when they feel shortchanged and the SEC has the power and obligation to sanction any fund manager breaching the provisions of the law guiding their activities.
• Mutual funds are managed by professional fund managers. Most young investors lack the technical knowledge needed to take on the complexities of financial investments. This is where the experience and expertise of professional fund managers come in. Mutual fund is an instrument through which novice investors can hand over the management of their funds to an experienced fund manager. These fund managers possess the expertise needed to analyze securities and other investment opportunities that can give the best yield to their unit holders.
• Liquidity - No rational investor want his money to be locked up in an asset. There are situations where investors in the capital market find it difficult to sell off their stake. But mutual funds investors can easily redeem their holdings.
• Steady flow of income through interest and dividends. Mutual funds usually pay interests or dividends as the case may be every quarter. Unit holders may choose to withdraw or reinvest their dividends in order to get it compounded.
I can go on and on. The list is exhaustive. The benefits of mutual funds investment especially for the youths is immeasurable. It simply provides opportunity to test the financial market and get insight how money compounds with time. It is the best way to start investment. Some reputable fund managers like Investment One Financial Services with their Money market fund (Abacus) is simply amazing. Another fund manager Axa Mansard Investment Limited with their money market and Equity income fund is still doing very well. I encourage the youths to explore the benefits of mutual funds for their own benefit and to contribute to capital formation in Nigeria.