Mutual funds is the money collected and accumulated from investors which is invested under one whole portfolio by the management team in different securities such as equity or debt securities.
Investment fund is a company that gathers and accumulates the money of different investors in order to gain capital power to invest and benefit on a larger scale. These mutual funds are invested in different accounts such as debt with fixed income (long-term or short-term) and equity securities on behalf of the investors in order to gain the maximum amount of profit. In other words, each share of the mutual fund represents a diversified portfolio which includes many different kinds of assets. By investing in mutual funds, the investor is giving full control of the fund to the investment fund’s management; the more the mutual fund portfolio profits, the higher the investor’s return.
Since not every investor has the time, knowledge, or the money to invest directly; many choose mutual funds which is a simple investment vehicle. Investment funds gather all the small capitals and give the right power to their analysts and management to invest with a greater power. The mutual fund concept has been trending for over a 100 years and its main motivation is that “unity creates power.”
You can profit from two ways:
• Rising stock price
When the portfolio value rises, naturally the funds’ net asset value rises. The net asset value per share is abbreviated as NAV.
NAV is a mutual fund’s price per share or exchange-traded fund’s (ETF) per-share value. In both cases, the per-share dollar amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding.
Some mutual funds may divide the profits among their shareholders from equity income profits or interests on fixed-income securities according to their policies.
Mechanism of mutual funds
Mutual fund structure consists of two pillars; management and supervision. Fund management has the duty of managing investment decisions and auditors have the duty of supervising the integrity of the fund.
Establishment and operation of mutual funds is SEO licensed and supervised by Securities and Exchange Organization (SEO) in order to protect the investor’s rights.
The main pillars are set by the fund’s convention by which the tasks will be completed.
Fund management consists of a team of experts with years of experience in investment whom after approval of SEO will have the responsibility of managing and making the right investment decisions for the fund. The management group usually owns 2% of the fund as its commission.
Fund management has the duty of setting company policies and investment guidelines, as well as making decisions regarding buying, selling, or holding the funds position in a trade. These decisions are made with the help of analysts and consultants.
In order to protect the investors’ right the trustee and an independent auditor are responsible to constantly oversee and monitor the management’s performance.
Prior to investing in a mutual fund it is advised that investors do their due diligence in terms of conducting research on the investment fund’s performance, portfolio, strategy, catalysts, management team, as well as the mentioned fund pillars. Most of this information is available on prospectus, statute, and web site of mutual funds. Finally after determining an appropriate strategy tailored to your goals you can start investing. Trade of mutual funds are done through brokerage firms or investment fund’s representatives.
Main advantages of mutual funds
Professional management: investment companies are a team made of experienced analysts and investment managers that continuously try to find appropriate equities, and buy or sell on time in order to achieve the best results for their investors.
Diversification: Investors with small capital can take advantage of being a part of a bigger portfolio with a diversified set of investments.
Cost reduction: due to economies of scale and block transactions, investment funds have significant savings where investors can take advantage of.
Administration work: Investment companies keep the history of operations, distribution of capital gains, dividend, investing, redemptions and release reports where the investor does not have to keep record of.
Why mutual fund is a reliable choice?