Investment in mutual funds
In order to make informed and informed decisions on the purchase or sale of shares, you need to acquire the necessary knowledge and skills, as well as some experience in the stock market. Often, some people do not have time for this, others are simply not interested in analyzing the stock market, and still others, realizing that investing in stocks is associated with a high level of risk, they want a more “safe haven” for their investments.
For such investors, the best option would be to invest in mutual funds, abbreviated as mutual funds. Such funds exist both in Russia and abroad, only there they are called Mutual funds – mutual funds.
So what is a mutual fund? Roughly speaking, this is a portfolio of shares circulating on the stock market, selected in a certain proportion by the management company. The function of the management company is to accumulate depositors’ money, invest them in profitable instruments (stocks, bonds), as well as adjust their shares in the fund depending on the current market situation. The fund is divided equally into conventional units (units), and by investing money in a fund (buying units), the investor does not buy a separate share, but part of the total package of shares of which the fund consists. This significantly reduces the risk of investing, since it complies with the rule of diversification (distribution) of funds across different types of assets. In addition, the investor himself does not participate in the management of the fund, this is done by the management company. This is another advantage of the fund – you do not need to be an expert in asset management in the stock market, a professional manages for you. Of course, the management company (hereinafter – MC) takes remuneration for their services, i.e., with each purchase of shares, the investor must pay an additional fee, but more on that below.
What are mutual funds?
Mutual funds are classified according to several criteria: by risk level, by type of securities that are acquired with the fund, by the degree of freedom of investors and so on.
The composition of securities mutual funds are of the following types:
Mutual funds shares.
Share mutual funds, as the name implies, consist of shares of companies (open joint-stock companies). Shares are acquired by the management company for money contributed to the fund by shareholders. When the price of shares included in the mutual fund increases (according to the results of trading on the stock exchanges), the price of the mutual fund shares also increases. When the stock price falls, the shares become cheaper. The task of the management company to buy shares, which should grow in price, and sell shares, which should fall in price. On how well the Criminal Code guesses (counts)? what shares to sell and what to buy, depends on the profitability of the mutual fund. Share mutual funds are the most risky type of mutual funds. Yields range from negative to high positive.
Mutual funds bonds.
Bonds mutual funds are the least risky investments, although they may be unprofitable, simply the probability of loss is very low. A compulsory low-risk satellite is low yield. The yield on mutual funds of bonds is about the same as that of bank deposits, 8-12%. Bond mutual funds can be used as a safe haven for capital during a falling market.
Mixed mutual funds.
Mixed mutual funds (mutual investment funds) are hybrids of stock mutual funds and bond mutual funds, i.e. they consist of both types of securities. Such funds have the most flexible strategies: they can consist of 100% of the shares during the market growth and 100% of the bonds during the fall of the market. In periods of uncertainty in the market, when it is not clear where the market will go tomorrow, such funds are the best option for capital investment.
Also mutual funds differ in the freedom of the shareholder to choose the time to buy and sell shares:
Open mutual funds.
If the mutual fund is open, you can buy, exchange and redeem units on any working day.
Interval mutual funds.
Interval unit investment unit shares can be bought, exchanged and extinguished only at certain fixed intervals several times a year (as a rule, two weeks four times a year).
Closed mutual funds.
Private mutual funds invest in such assets that cannot be partially sold in order to redeem the shares of one or several shareholders, and it is possible only to sell all the assets of the mutual fund and redeem all shares.
In addition, funds are industry-specific (for the money of the fund, shares of companies of any one industry are acquired, for example, oil or metallurgy), index (the composition of shares acquired with money of the fund copies the composition of shares of the MICEX index or RTS; therefore, such a fund increases or decreases in according to the index).
Investment in mutual funds
Every investor who invests his savings in mutual funds must understand that mutual funds are a “race for a long distance”; in other words – the funds give a tangible profit only for long periods of investment – from 5 years and more. Therefore, funds that you may need in a shorter period of time, it is better to invest in other assets, but more on that later.