Mutual fund is a derivative instrument traded in the stock market. A mutual fund primarily has equities or bonds as underlying assets. The fund manager invests money to buy these underlying assets and the funds are allocated in the same ratio as the weight of each asset. Instead of buying individual assets (stocks or bonds), an investor can buy shares of mutual funds and indirectly invest in these assets. Mutual fund is an interesting investment option as it reduces the investment risk but at the cost of returns on investment. A mutual fund is sensitive to market risks and may underperform in case of a bear market. A fund of fund mutual fund has mutual funds as underlying assets. A mutual fund can be an open ended or a closed ended mutual fund. In the former, the value of the fund is determined after the market closes, whereas, the latter is traded like a stock and is also called an exchange traded fund.
In comparison, peer to peer loans provide a different asset class of fixed income instruments. A portfolio of such loans is similar to mutual funds, esp. the one comprised of bonds, in the sense that risk and returns of the portfolio are a function of the underlying loans. A lender on Faircent platform can build the loan portfolio by selectively choosing loans or setting up the Auto-invest option where the system automatically invests in loans based on the lender risk profile. Faircent platform provides returns as high as 25%, and loans listed on the platform provide an interest rate range of 12% to 36%.
As any financial instrument, both mutual funds and peer to peer loans are risky investments.
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