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.
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.
The ease of entry and exit is a major advantage of this kind of investment. Buying and selling of units is comparable to that of stocks. This makes the investment quite liquid. What this means is that one can easily convert their units into money simply by selling back to the fund manager. This is in contrast to other investments such as real estate in which selling of properties tends to take much longer.
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.
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.
The ease of entry and exit is a major advantage of this kind of investment. Buying and selling of units is comparable to that of stocks. This makes the investment quite liquid. What this means is that one can easily convert their units into money simply by selling back to the fund manager. This is in contrast to other investments such as real estate in which selling of properties tends to take much longer.
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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