Mutual Funds are pools of money entrust by different people to an organization or company that is manage by professional advisers or stocks investors. By combining one investors fund with others a larger capital is generate that will be use to invests in securities like bonds, stocks, short-term debt and other investment products.
To make it simpler, your money along with other peoples money are combined to form a capital. This capital will be used to buy funds from different investment products like Stocks, Bonds and so on. The larger the capital is formed, the larger the gain is. But gains will still base on how the market moves.
Why Do People Buy Mutual Funds?
Mutual Fund is one of the best choices of most people when it comes to investing because it is easy to understand. Some key features that make Mutual Fund popular are stated below;
- Professional Money Management. They are the people who will do everything for you, from researching and fitting the right securities of investment that will match you. They will also be the one to monitor the movement of your investment.
- Better way of Diversification. Mutual Funds (MF) usually invest on a wide range industry and/or company. By investing your money in a broad variety of assets, it helps lower the risk of investment loses.
- Most mutual funds set a relatively low amount of money for initial investment and subsequent purchases. This is a hassle-free way to help newbies who don’t have that much money but want to start investing a stepping stone.
- Long-Term Investing. Most Mutual Funds are invested for long term. Some are held for certain period of years so to avoid inflation and see a more dynamic gain.
- High Liquidity. Some funds are invested on a highly liquidated investment which means you can buy and sell your shares anytime within every business day.
What Types Of Mutual Funds Are There?
There are four common types of Mutual Fund; investors can put their money into. Every single type has risk level and best time frame that will suit any investors’ goals for their financial needs.
- Equity Funds. This type of Mutual Funds is for high risk investors who are familiar with the stock market. They invest MF in Equity so to maximize more of their profits. An estimate 5 years holding period is required for an EF.
- Bond Funds. A type of Mutual Fund that suits a conservative to moderate type of investor. Bonds are higher in earnings than those of Time Deposit and Money Market investment. It can also protect an investor’s money against inflation. An estimate of 1 to 3 years holding period is advice.
- Money Markets. A Mutual fund fit for a low risk investor who wants to earn a higher profit than savings account, checking account of time deposit while preventing their money to lose its value. An estimate of 1 year holding period is a must.
- Balanced Funds. An ideal investment for low to moderate risk investor who wants to earn higher profit than Bond Fund. A type of Mutual Fund where money is invested on mixed shares from stocks and bonds. A 3 to 5 years holding period is advice.
How can one earn from Mutual Fund?
Since Mutual Fund is managed by an organization or a company, let me give you an idea on how can you earn from it.
- Asset Appreciation. When the ‘Capital’ (pools of money) from where the MF is, has increased in value and sold by the fund manager, it will be passed on and distributed to the funds’ investors. But if the fund manager did not sell even it has increased in value, you as one of the fund investor may opt to sell your shares to earn a return.
- Interest and Dividends. Most bonds and stocks where funds from MF are distributed received interest and dividends annually. It is another way to earn income through Mutual Fund. You may opt to receive the earning through check or reinvest it to buy more shares.
Let Elite Capital International help you start your investing journey, contact us and meet our professionally trained fund managers.