There are many types of investments available for one consider whenever they have some capital. Some of the commonly considered investments include stocks, real estate and government bonds and bills. Mutual funds are a form of investment in which resources from different investors are pooled together so as to obtain enough capital for investment and get capital gains that are distributed to the unit holders as dividends.
A fund typically is divided into a number of units representing its entire value. The units can be bought and sold between unit holders at a price that will vary depending on the performance of the investment instruments. Purchase can be made by giving a lump sum of money or through regular small amounts. Smaller payments allow investors with small amounts of money to build their portfolios gradually over time.
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.
Funds are generally low risk investments. As such, the returns are also comparatively lower. With stocks for example, there is a high risk arising from the volatility in the prices but this also creates a great potential for high returns. Funds are tied to government bonds and bills and stocks thus their returns will also vary when the returns associated with these instruments also vary.
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 undertaken by most fund managers. The aim of diversifying is to cushion investors from shocks experienced in particular industries. The other advantage is that growths occurring in particular industries are passed down to investors. For example, investments may be spread in sectors such as stocks, real estate and government bonds.
Economies of scale are another advantage offers by the funds. By pooling resources mutual fund managers get an opportunity to bargain for better terms. They can earn higher interest and also benefit from lower average administrative costs. The commissions and other charges associated with creating various portfolio are much lower, on average, compared to what would be incurred by an individual investor if they were to invest on their own.
At a small fee, one gets to buy into a portfolio that is managed by professionals. This provides an opportunity for even the small investor to benefit from these services which would otherwise only be available to high net worth individuals. This may, however, be a disadvantage because the fund managers will always charge a commission regardless of whether or not a profit has been made.
A fund typically is divided into a number of units representing its entire value. The units can be bought and sold between unit holders at a price that will vary depending on the performance of the investment instruments. Purchase can be made by giving a lump sum of money or through regular small amounts. Smaller payments allow investors with small amounts of money to build their portfolios gradually over time.
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.
Funds are generally low risk investments. As such, the returns are also comparatively lower. With stocks for example, there is a high risk arising from the volatility in the prices but this also creates a great potential for high returns. Funds are tied to government bonds and bills and stocks thus their returns will also vary when the returns associated with these instruments also vary.
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 undertaken by most fund managers. The aim of diversifying is to cushion investors from shocks experienced in particular industries. The other advantage is that growths occurring in particular industries are passed down to investors. For example, investments may be spread in sectors such as stocks, real estate and government bonds.
Economies of scale are another advantage offers by the funds. By pooling resources mutual fund managers get an opportunity to bargain for better terms. They can earn higher interest and also benefit from lower average administrative costs. The commissions and other charges associated with creating various portfolio are much lower, on average, compared to what would be incurred by an individual investor if they were to invest on their own.
At a small fee, one gets to buy into a portfolio that is managed by professionals. This provides an opportunity for even the small investor to benefit from these services which would otherwise only be available to high net worth individuals. This may, however, be a disadvantage because the fund managers will always charge a commission regardless of whether or not a profit has been made.
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