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.
A fund is made up of many units that can be bought and sold between unit holders. This is similar to what occurs in the stock market. The value of a unit keeps changing depending on the performance of the instrument in which the investment has been made. One can buy a unit with a lump sum payment or they can do so over time. This second option favours low income earners.
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.
The funds are associated with some of the lowest risks. The rule of thumb for most investments is that the lower the risk, the lower the returns. Compared to stocks which are more volatile, funds have less returns. Since most of them are pegged on government bills and stocks, the returns tend to fluctuate over time thus It is difficult to project earnings over a certain period of time.
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.
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.
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.
Investors with a mutual fund benefit from professional management of their wealth at a small fee. Ordinarily, such management is mainly available to high net worth individuals. The only disadvantage is that the fees charged are fixed and do not take into consideration whether the fund has made a profit or loss. Therefore, losses may be incurred if a fund does not gain much on its investments.
A fund is made up of many units that can be bought and sold between unit holders. This is similar to what occurs in the stock market. The value of a unit keeps changing depending on the performance of the instrument in which the investment has been made. One can buy a unit with a lump sum payment or they can do so over time. This second option favours low income earners.
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.
The funds are associated with some of the lowest risks. The rule of thumb for most investments is that the lower the risk, the lower the returns. Compared to stocks which are more volatile, funds have less returns. Since most of them are pegged on government bills and stocks, the returns tend to fluctuate over time thus It is difficult to project earnings over a certain period of time.
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.
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.
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.
Investors with a mutual fund benefit from professional management of their wealth at a small fee. Ordinarily, such management is mainly available to high net worth individuals. The only disadvantage is that the fees charged are fixed and do not take into consideration whether the fund has made a profit or loss. Therefore, losses may be incurred if a fund does not gain much on its investments.
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