The answer is simple: a mutual fund (unit investment fund) is, in principle, an investment in stocks. Only in this case, the investment strategy is chosen and implemented by specialists working in the mutual fund for you.
If you have just started to get acquainted with the stock market and you do not have much money, then transferring your savings to a mutual fund is the best option for you. remember, that self working with stocks, even if you use the simplest stock selection systems, will always require your closest attention. Investing with the help of mutual funds occurs almost “on autopilot”.
What is an investment fund?
This is one of the possible investment strategies for individuals - a joint investing a large number of private investors (shareholders) in stocks, bonds, real estate By the way, foreign mutual funds are called mutual funds. You can also cooperate with them if you want to invest abroad.
If you want to put your money in a domestic mutual fund, you should contact Management company. It is the Management Company that is engaged in investing the money that the shareholders brought into a particular mutual fund in specific securities and distributes the profit between the shareholders.
That is, the mutual fund is great for those who want to be an investor, but do not want to invest on their own.
But still, for starters you will have to choose a mutual fund and do it yourself. Therefore, before you bring your money to a management company, which has several different mutual funds, you must decide what exactly you want to invest your money in.
There are a huge number of mutual funds, and you can choose any one to your taste: stock fund, bond fund, real estate fund, venture fund, index fund
At the same time, there is a stock fund of large companies, a stock of stocks of small companies, a stock of stocks of growing companies, a stock of stocks of metallurgical companies
Modern Investment Instruments (Jul 2019).
Editor's Note: This is another of a series of articles on mutual funds and their role in investing.
Investors used to buy individual stocks can invest a little in mutual funds. In most cases, mutual funds are sold and sold differently than individual stocks.
To better understand the process, let's start by evaluating mutual funds.
Individual stocks are constantly revalued during trading hours based on the influence of supply and demand.
When you buy stocks, you become the private owner of the company.
When you buy into a mutual fund, you buy a partial interest in the totality of assets (usually in stocks, bonds, and derivatives). Individual stocks are constantly revalued during trading hours based on the influence of supply and demand.
When you buy into a mutual fund, you buy partial interest in a combination of assets (usually stocks, bonds, and derivatives.
Individual stocks are constantly revalued during trading hours based on demand and demand. When you buy stocks, you become the private owner of the company. When you buy into a mutual fund, you buy a partial interest in the totality of assets (usually these are stocks, bonds and derivatives.
Index mutual fund
Separately, we should talk about index mutual funds, because they are a very good choice for a beginner investor.
Index fund - this is an investment, the structure of which copies a particular stock index (e.g. RTS or NASDAQ), you invest in the securities of those companies that are part of a certain stock index.
Attention! As practice shows, indicators of profitability of index mutual funds in the long term always betterthan withordinary»Mutual funds.
Individual stocks are constantly revalued during trading hours based on the influence of supply and demand. When you buy stocks, you become a partial owner of the company.
When you buy into a mutual fund, you buy partial interest in co (usually stocks, bonds and derivatives).
Mutual funds are valued differently than stocks. Most mutual funds issue as many shares as people want to buy, while there is a limited number of shares.
These funds are known as open-end mutual funds. For example, if a fund has issued 2 million shares and has assets of $ 30 million, each share is valued at $ 15 per share. For each additional $ 15, the fund’s assets increase by this amount, and the share price remains at $ 15, because the fund issues new shares at the current price ($ 15). This price is what is quoted in the newspaper and online, and is known as the value of net assets.
Net worth is the daily value of a mutual fund, which includes all assets minus fund liabilities translated into share prices. This is the price you buy and sell shares of mutual funds, if you are dealing directly with the company.
The calculation of the value of net assets is more complicated than this simple example, because the fund does not just sell shares - it buys and sells shares and / or bonds, makes and sells other investments and buys shares of investors who want to sell.
In addition, the market value of the fund’s funds changes every day and should be recalculated when the stock market closes and all stocks of the fund have a closed value. Here is a simple formula that illustrates the calculation of the value of net assets:
Initial value of fund assets
Any new investment
Dividends, interest, capital gains plus
Any increase in the price or value of the assets of the fund
Any reduction in the price or value of the assets of the fund
Any shares repurchased to investors (assets sold or cash decreased)
Dividends, interest or capital gains paid to shareholders
If you want to buy or sell shares of the fund during the day, this is the price you will pay or receive. The fund calculates it every day after markets close.
Another type of mutual fund, called a closed-end fund, works differently. A closed-end mutual fund issues a fixed number of shares. These shares are traded on exchanges, such as ordinary shares of companies. Since closed stock markets are traded on the open market, their stock prices are determined by supply and demand.
Although closed-end mutual funds have NAVs, they can trade above or below this price based on whether investors are confident about the future of the fund or not. There are far more open funds than closed funds.
You will learn that you are buying a closed-end fund, because you need to buy it through a stockbroker, and you can watch the price change during the day.
Unlike an open-end mutual fund, you can only buy or sell closed-end funds when markets are open.
Basic rules of financial security
Better to start with low risk investment, and to high-risk suitable only when you have more experience in investing. Start with small amounts and never invest yours the last money.
The best way to manage risk is to create investment portfolio so that it contains investments with different levels of risk: low, medium, and high.
Buying and selling mutual funds
One of the advantages of investing in mutual funds is their liquidity, that is, you can sell your shares or buy more with ease. Most funds make investments easy, with a minimum of documents and several payment options.
Mutual funds are redeemed from a mutual fund and sold back to the fund. Unless a broker or sales agent is involved, you almost always work directly with the fund.
Mutual funds do not bother with transactional fractional shares. Unlike ordinary stocks, you buy mutual funds in dollars, and the fund converts your investments into the correct number of shares based on NAV at the time of your investment, even if this leads to an uneven number of shares.
Most large fund companies support extensive Internet sites and customer service customer banks to answer questions and process purchases and repayments.
Why are mutual funds generally good?
First of all, in order to invest in them, it is enough to have only a few thousand rubles. True, the less you invest, the less you earn, but the fact remains: very little money is needed to start investing.
Secondly, even minimal investment diversifiedthat is, the funds do not invest the money received in one or two shares, but in large blocks of shares of different companies.
Find on the Internet the nearest office of the Management Company of any PIF and sign up for a personal consultation, they are carried out absolutely free - let them advise you what to do in your case.
Just don’t buy anything from them! Just listen carefully and ask your questions.
“Start with small deals. Only education and experience make a person richer and richer. " Robert Kiyosaki
What is a mutual fund?
What is a mutual fund? In essence, it is a diversified portfolio of stocks managed by professional traders. This fund issues its shares, the value of which directly depends on the value of the portfolio. Thus, mutual fund investors earn if the hodgepodge of the stocks collected in the fund’s portfolio grows in value and suffers when the price of the portfolio falls (for example, during periods of a bear market).
In Russia, mutual funds are analogous to mutual investment funds (UIFs) instead of shares they sell shares to their investors. The rest of the discussion is about investing in Western (American and European) mutual funds, the reliability of which has been confirmed for many decades. However, for our Russian mutual funds (for those who have already managed to prove their reliability and professionalism of managers) this information will also be relevant.
How investment in mutual funds compares favorably with investment in stocks
When buying shares of a company, the investor must always remember that the price of them can fall and never rise again. A single company, no matter how huge a corporation it may be today, at one “fine” moment can simply go broke and leave its shareholders with a nose. Such a fate does not threaten a serious mutual fund thanks to:
- The wide diversification of the stock portfolio. When, even with the decline in the whole sector, the value of the portfolio will not drop much due to shares of enterprises from other sectors of the economy.
- Professional Management. Serious funds are managed by serious people. They do this professionally, and they know when and what assets should be bought up, and which ones need to be disposed of urgently.
Therefore, in the long run, investments in mutual funds are always profitable. If we take American funds as an example, then their entire history shows that they always ultimately show profit. It is important to remember that shares of mutual funds are classified as long-term investments, and they bear fruit with investment periods of 10-15 years.
How to invest correctly
The right investment in mutual funds is an excellent way to place capital. Many people do not understand the simple truth that in order to make a really big fortune, investments in the RF should be kept for at least a few economic cycles during which the market rises and falls. Many simply do not have the patience, and they close their positions at those stages of the cycles when the price of shares of the WF begins to decline. Meanwhile, in this case, a reduction in prices is a great opportunity to buy more shares. Yes, it’s just to buy, or as they say, averaged on the decline. This is what I categorically do not recommend doing when investing in stocks, but I advise you to do when investing in mutual funds. After all, as mentioned above, a diversified fund portfolio under professional management has a much greater chance of continuing growth after another fall.
How to choose a mutual fund for investment
You should choose from those funds that have shown steady growth over the past few years. Among them, choose one that is ahead of everyone else in the last year. The stock portfolio of the fund should be widely diversified, that is, it should contain shares of enterprises belonging to various sectors of the economy, and not be concentrated around one specific niche.
Information about the funds and their structure should be sought from competent sources (for example, when choosing an American mutual fund, you can rely on data from Investor’s Business Daily).
The secret to compound interest
Earning an annual percentage of capital, and investing it this same capital, we end up with interest on interest, or in other words, compound interest. Not everyone imagines the power of compound interest, but meanwhile it is truly colossal. Let's look at the effect of compound interest on a simple example. Suppose you invested 100,000 rubles at 15% per annum and annually take profit, then in twenty years you will earn: 20 years * (100,000 rubles / 100%) * 15% = 300,000 rubles, plus the original 100,000 rubles, total: 400,000 rubles.
And now we will consider the same situation, but only on the condition that profit is not withdrawn annually, but added to the main contribution (reinvested). Mathematics in this case will have the following form:
In a year, you will receive 15,000 rubles of interest and add them to the initial 100,000 rubles of investments.
In another year, you will receive your 15% profit, but not from 100,000 rubles, but from 115,000 rubles, which will be: (115000/100) * 15 = 17,250 rubles. We again add the profit we receive to the invested capital, thus increasing it to 115,000 + 17250 = 132250 rubles.
If we do the same for the remaining 18 years, we will end up with an amount of 1,423,177 rubles. You can exercise with the calculator and check the result I received. And the result is obvious. In the first case, we had 400,000 rubles at the end of the investment period, and in the second case, we received 1,423,177 rubles, a million rubles more. This very one million is the result of magic of compound interest!
Major Mistakes in Investing in Mutual Funds
Sometimes investors choose sector funds, whose portfolio is focused on a particular sector of the economy and, therefore, will depend heavily on it. Unlike, for example, an index fund, the portfolio of which includes shares of a certain index (for example, S & P500), which will not sag so much during a recession in any particular sector of the economy, because shares of enterprises belonging to other sectors will always support it.
Often, investors do not stand the long-term race, which involves investing in a selected fund for at least 10-15 years. During periods of recession, many transfer savings from one fund to another (showing more impressive results) without waiting for the next rise.But you should remember that after a year or several years of relatively stable growth, any fund will inevitably experience a certain decline (this is a completely natural process). The result is a situation where they sell for cheap and buy for expensive.
Investing in reliable mutual funds, subject to the above rules, is an excellent means of allocating capital. This is by no means the Grail, but - a means for profitable investment of money, at least. And as a maximum, investments of this type can be considered as a basis for creating financial independence.
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A-Share Mutual Fund Benefits
The greatest benefit from buying A-share mutual funds is the advice received in exchange for an initial sale. Advisers who sell A-share mutual funds receive compensation from the initial sale fee, and in return they must provide research to fund managers, cost ratios, and fund performance over time to help investors make a suitable mutual fund purchase. For investors who do not have the time or desire to complete this study, the adviser's recommendations can be invaluable.
In addition to professional advice, A-share mutual funds have a lower marketing fee known as 12b-1, and many offer checkpoints when shopping. The mutual fund break point is the investor with a reduction in investment fees for investments for a certain threshold, for example, 10, 000, 25, 000 or 50 000 US dollars.
Shortcomings in the mutual fund
Initial sales for a unit investment share may fall between 2. 75% and 5. 75%. Initial investments and any subsequent investments are reduced due to sales fees, and the remaining balance is invested in the fund.
For example, an investor of $ 10,000 to invest in an A-share mutual fund that accrued 4% would pay $ 400 as a commission from the top of his investment, leaving $ 9,600 for the purchase of shares of the mutual fund. Initial sales can make it difficult to achieve an adequate rate of return over time.
Benefits of Mutual Fund Mutual Fund
A fund without a load does not come with the same advice or research from an adviser or broker, and as such, there is no investment for investments. Since a third party does not pay compensation for the recommendation of the fund, the expense ratio in most funds without a load is lower than A-share funds . Reducing upfront and internal operating costs for a mutual fund may allow investors to achieve higher rates of return over time.
Disadvantages of a mutual fund without a load
There are currently thousands of investments in mutual funds in the market, and it may seem difficult for investors to decipher what is best for them based on risk tolerance, fund management, and historical performance. Funds without load do not come with the advice or recommendations of an adviser or broker, so the risk of poor choice remains with one investor.