Question

When people put large sums of money into mutual funds through their brokers, is that an act of “economic investment” or not? Explain your answer.

Answer 1

Mutual funds investment refers to a professionally managed investment scheme of the money collected from the investors on their behalf. It includes a management fee of money. Mutual funds are an ideal investment vehicle for those investors who do not have enough knowledge about investment. They can choose a mutual fund scheme based on their financial goal that can be achieved through investment.

Economic investment on the othrer hand is the puchase of goods that are not consumed today but are used in the future to create wealth. In other words, investment is a monetory asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit.

Therefore mutual fund investment can be referred to as an economic investment. However it is subject to a market risk.