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There are many types of investments available for one consider whenever they have some capital. Some of the commonly considered investments include stocks, real estate and government bonds and bills. Mutual funds are a form of investment in which resources from different investors are pooled together so as to obtain enough capital for investment and get capital gains that are distributed to the unit holders 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.
The entry and exit in a fund is quite easy. One can buy and sell the units as easily as they would transact in stocks. This makes the investment very liquid such that one can easily convert the investment into money. In most cases, money is credited to the account of the seller in a span of two to three days. Real estate is less liquid as it takes fairly long to convert investments into money.
One of the other major advantages of this form of investment is diversification. What this means is that the pooled resources are put in different classes of assets which may include stocks, treasury bills and bonds and even real estate. Diversification ensures that the risks associated with one asset class are mitigated by other asset classes. It also increases the chances of having good returns in case one of the asset classes experiences growth and both the others.
Economies of scale are a major benefit due to the pooling of resources. Fund managers can easily bargain for better terms such as interest because of the large amount of capital. This is in contrast to individual investors whose bargaining power is limited. The other benefit is that administrative costs are shared by the many investors and thus the average for each of them is considerably reduced.
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.
The entry and exit in a fund is quite easy. One can buy and sell the units as easily as they would transact in stocks. This makes the investment very liquid such that one can easily convert the investment into money. In most cases, money is credited to the account of the seller in a span of two to three days. Real estate is less liquid as it takes fairly long to convert investments into money.
One of the other major advantages of this form of investment is diversification. What this means is that the pooled resources are put in different classes of assets which may include stocks, treasury bills and bonds and even real estate. Diversification ensures that the risks associated with one asset class are mitigated by other asset classes. It also increases the chances of having good returns in case one of the asset classes experiences growth and both the others.
Economies of scale are a major benefit due to the pooling of resources. Fund managers can easily bargain for better terms such as interest because of the large amount of capital. This is in contrast to individual investors whose bargaining power is limited. The other benefit is that administrative costs are shared by the many investors and thus the average for each of them is considerably reduced.
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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