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.
Typically, a fund is divided into many units with each of them representing a certain value. The value keeps changing depending on the value of the investments made. An investor buys units much like they do for stocks in the stock market. The purchase of units can be done in one instance or on a regular basis. The latter option favours low income earners who may not have a lot of resources at their disposal initially.
Different type of funds exist. Some only invest in government paper and are thus termed money markets. Others invest in stocks only and a third type may have a mixture of government paper, stocks and even real estate. These are known as balanced funds. An investor will chose the arrangement that suits them most depending on their risk appetite.
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.
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.
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.
Typically, a fund is divided into many units with each of them representing a certain value. The value keeps changing depending on the value of the investments made. An investor buys units much like they do for stocks in the stock market. The purchase of units can be done in one instance or on a regular basis. The latter option favours low income earners who may not have a lot of resources at their disposal initially.
Different type of funds exist. Some only invest in government paper and are thus termed money markets. Others invest in stocks only and a third type may have a mixture of government paper, stocks and even real estate. These are known as balanced funds. An investor will chose the arrangement that suits them most depending on their risk appetite.
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.
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.
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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