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.
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.
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.
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.
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.
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.
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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