There are many forms of investments that one may consider if they have some money to put aside for future use. Mutual funds are among the most popular options because they are often used saving money while providing some returns at the same time. The idea is to pool resources from many investors so as to have a huge amount of capital to earn reasonable returns shared that are distributed to the investors as dividends.
Typically, a fund is divided into many units with each of them representing a certain value. The value keeps changing depending on the value of the investments made. An investor buys units much like they do for stocks in the stock market. The purchase of units can be done in one instance or on a regular basis. The latter option favours low income earners who may not have a lot of resources at their disposal initially.
Different type of funds exist. Some only invest in government paper and are thus termed money markets. Others invest in stocks only and a third type may have a mixture of government paper, stocks and even real estate. These are known as balanced funds. An investor will chose the arrangement that suits them most depending on their risk appetite.
Funds are generally low risk investments. As such, the returns are also comparatively lower. With stocks for example, there is a high risk arising from the volatility in the prices but this also creates a great potential for high returns. Funds are tied to government bonds and bills and stocks thus their returns will also vary when the returns associated with these instruments also vary.
There is ease of entry and exit. Buying and selling investment units is as easy as buying stocks. There investments are considered very liquid. This means that an investor can access part of, or the entire investment in a short period of time. In most cases, money can be credited to their accounts in a period of 48 to 72 hours. This is in contrast to other investments such as real estate in which getting a buyer for a property often takes months if not years.
Diversification is a major feature. Diversification refers to the act of investing in various varied classes of assets preferably in different industries. The advantage of this is that the investor is shielded from adverse outcomes occurring in one industry. It also ensures that a growth in the profits in assets in a particular industry also benefits the unit holders.
Funds enjoy what are referred to as economies of scale. These are simply benefits that arise from having a large amount of pooled capital as well as the increased bargaining power. Fixed costs such as commissions and other administrative costs are borne by all the investors equally which serves the reduce the average cost. Such benefits cannot be enjoyed by an individual investor who in most cases has to cater for their own administrative costs.
A mutual fund allows an investor to buy into a professionally managed portfolio. Without such a fund, professional management of wealth would be a preserve of high net worth individuals. The otherwise to this is that the fees charged reduce the returns to the investors. Such fees may lead to considerable losses if the fund does not make a profit on its investments.
Typically, a fund is divided into many units with each of them representing a certain value. The value keeps changing depending on the value of the investments made. An investor buys units much like they do for stocks in the stock market. The purchase of units can be done in one instance or on a regular basis. The latter option favours low income earners who may not have a lot of resources at their disposal initially.
Different type of funds exist. Some only invest in government paper and are thus termed money markets. Others invest in stocks only and a third type may have a mixture of government paper, stocks and even real estate. These are known as balanced funds. An investor will chose the arrangement that suits them most depending on their risk appetite.
Funds are generally low risk investments. As such, the returns are also comparatively lower. With stocks for example, there is a high risk arising from the volatility in the prices but this also creates a great potential for high returns. Funds are tied to government bonds and bills and stocks thus their returns will also vary when the returns associated with these instruments also vary.
There is ease of entry and exit. Buying and selling investment units is as easy as buying stocks. There investments are considered very liquid. This means that an investor can access part of, or the entire investment in a short period of time. In most cases, money can be credited to their accounts in a period of 48 to 72 hours. This is in contrast to other investments such as real estate in which getting a buyer for a property often takes months if not years.
Diversification is a major feature. Diversification refers to the act of investing in various varied classes of assets preferably in different industries. The advantage of this is that the investor is shielded from adverse outcomes occurring in one industry. It also ensures that a growth in the profits in assets in a particular industry also benefits the unit holders.
Funds enjoy what are referred to as economies of scale. These are simply benefits that arise from having a large amount of pooled capital as well as the increased bargaining power. Fixed costs such as commissions and other administrative costs are borne by all the investors equally which serves the reduce the average cost. Such benefits cannot be enjoyed by an individual investor who in most cases has to cater for their own administrative costs.
A mutual fund allows an investor to buy into a professionally managed portfolio. Without such a fund, professional management of wealth would be a preserve of high net worth individuals. The otherwise to this is that the fees charged reduce the returns to the investors. Such fees may lead to considerable losses if the fund does not make a profit on its investments.
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