When it comes to investment, there are many options to consider. Popular options include real estate, the stock market and government bonds and bills. Mutual funds are an investment tool that allows an investor to investor in one or more of these options even when they have less capital. Money from different investors is pooled together making it easier to invest and earn favourable returns.
A fund typically is divided into a number of units representing its entire value. The units can be bought and sold between unit holders at a price that will vary depending on the performance of the investment instruments. Purchase can be made by giving a lump sum of money or through regular small amounts. Smaller payments allow investors with small amounts of money to build their portfolios gradually over time.
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.
In general, funds have some of the lowest risks as compared to other investment options. Because of this, the returns associated with them are also comparatively lower. Stocks have greater volatility but also have the potential for the greatest returns. Most funds are pegged on stocks and government paper hence the returns will also vary depending on the performance of these instruments. This makes it quite difficult to make projections on future earnings.
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.
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.
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.
At a small fee, one gets to buy into a portfolio that is managed by professionals. This provides an opportunity for even the small investor to benefit from these services which would otherwise only be available to high net worth individuals. This may, however, be a disadvantage because the fund managers will always charge a commission regardless of whether or not a profit has been made.
A fund typically is divided into a number of units representing its entire value. The units can be bought and sold between unit holders at a price that will vary depending on the performance of the investment instruments. Purchase can be made by giving a lump sum of money or through regular small amounts. Smaller payments allow investors with small amounts of money to build their portfolios gradually over time.
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.
In general, funds have some of the lowest risks as compared to other investment options. Because of this, the returns associated with them are also comparatively lower. Stocks have greater volatility but also have the potential for the greatest returns. Most funds are pegged on stocks and government paper hence the returns will also vary depending on the performance of these instruments. This makes it quite difficult to make projections on future earnings.
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.
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.
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.
At a small fee, one gets to buy into a portfolio that is managed by professionals. This provides an opportunity for even the small investor to benefit from these services which would otherwise only be available to high net worth individuals. This may, however, be a disadvantage because the fund managers will always charge a commission regardless of whether or not a profit has been made.
About the Author:
When you are looking for information about mutual funds, come to our web pages online today. More details are available at http://www.crystalresearchllc.com/about-crystal-research-llc.html now.
No comments:
Post a Comment