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 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.
There are various forms of funds that exist depending on the predominant areas of investment. One type is where the investments are made in government paper comprising of bonds and bills. These are also known as money markets. A second type is where the main investment are in stocks. A third type is made up of several classes of investments in various proportions. This is what is termed a balanced fund.
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.
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 undertaken by most fund managers. The aim of diversifying is to cushion investors from shocks experienced in particular industries. The other advantage is that growths occurring in particular industries are passed down to investors. For example, investments may be spread in sectors such as stocks, real estate and government bonds.
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.
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.
There are various forms of funds that exist depending on the predominant areas of investment. One type is where the investments are made in government paper comprising of bonds and bills. These are also known as money markets. A second type is where the main investment are in stocks. A third type is made up of several classes of investments in various proportions. This is what is termed a balanced fund.
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.
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 undertaken by most fund managers. The aim of diversifying is to cushion investors from shocks experienced in particular industries. The other advantage is that growths occurring in particular industries are passed down to investors. For example, investments may be spread in sectors such as stocks, real estate and government bonds.
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.
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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