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The mutual fund is a company whose object of activity is investments in financial markets.
Mutual funds are among the best known investment vehicles. Their purpose is to attract money from investors and invest them in financial instruments: stocks, bonds, monetary instruments, etc.
These mutual funds are joint stock companies, managed by specialized companies called management companies, which attract financial resources to place them in liquid financial instruments.
This is a simple investment tool as it presents a simple way to diversify investments and does not require knowledge to manage them as they are managed by a specialized entity.
The management company makes decisions regarding the allocation of funds, deals with the relationship with investors, keeps records for each investor, issues and redeems the fund's securities, collects income, etc. The services provided by the management company are charged with the help of commissions charged on the realized incomes.
The investment strategy that a fund adopts influences the costs and expectations regarding the results of the investments.
Mutual funds can be managed passively or actively. Active administration means higher taxes but higher return potential and higher risks. Passive management strategies are associated with safe investments and active strategies with profitable investments.
Benefits of mutual funds
The possibility of acquiring units of mutual funds allows the small investor to invest in a diversified portfolio of financial instruments that he would not otherwise be able to afford to acquire. And it's an easy-to-manage investment type, buy fund units and that's it. This creates an economy of scale and ordinary investors can benefit from market gains.
Mutual funds offer a good way to diversify their savings, as they offer the possibility to choose more conservative or risky types of investments depending on the risk profile of each, but also the possibility to invest in a variety of asset classes and industries. .
You can invest as much as you can, there is no minimum amount and you can withdraw your money when you consider. The law obliges mutual funds to redeem their fund units upon request. However, keep in mind that there are fees for withdrawing funds.
Unlimited access to information on the fund's activities. The law stipulates that mutual funds must publish information about what risks they take and what objectives they want to achieve.
Mutual funds earn income:
From dividends or interest on various assets in the portfolio
When the net worth of the portfolio increases
When he sells an asset at a higher price than the one he bought it from
Types of mutual funds
There are a variety of mutual funds that offer a wide range of potential return and risk opportunities. Here is a classification of mutual funds:
Monetary funds - are the safest, low risk and low return, equivalent to a savings account. Prudent investment strategy, invests heavily in bank deposits, government bonds, mortgages and bonds.
Fixed income instrument funds and bond funds. They aim to provide a steady income to investors, take medium risks and as a result earnings are average. The vast majority is invested in bonds and monetary instruments and only 10-20% in shares.
Diversified funds - the risk is above average, towards high risk, investments are made in a balanced manner, about half in bonds and monetary instruments and half in stocks
Equity funds - are considered the funds with the highest risks, but also with the highest earning potential. Stock market fluctuations can affect profits but can also lead to losses.
There are other types of funds that are preferred by investors for certain characteristics:
Funds traded on the stock exchange known as ETFs. They have the advantage of being traded on the stock exchange, as well as shares, but they propose diversification specific to mutual funds. Plus they have lower fees than mutual funds.
Index funds. It is based on a benchmark such as the DAX, Nasdaq, S & P500. These funds are comprised only of shares of that index. It offers risks and returns in line with those of that market.
Mutual funds are among the best known investment vehicles. Their purpose is to attract money from investors and invest them in financial instruments: stocks, bonds, monetary instruments, etc.
These mutual funds are joint stock companies, managed by specialized companies called management companies, which attract financial resources to place them in liquid financial instruments.
This is a simple investment tool as it presents a simple way to diversify investments and does not require knowledge to manage them as they are managed by a specialized entity.
The management company makes decisions regarding the allocation of funds, deals with the relationship with investors, keeps records for each investor, issues and redeems the fund's securities, collects income, etc. The services provided by the management company are charged with the help of commissions charged on the realized incomes.
The investment strategy that a fund adopts influences the costs and expectations regarding the results of the investments.
Mutual funds can be managed passively or actively. Active administration means higher taxes but higher return potential and higher risks. Passive management strategies are associated with safe investments and active strategies with profitable investments.
Benefits of mutual funds
The possibility of acquiring units of mutual funds allows the small investor to invest in a diversified portfolio of financial instruments that he would not otherwise be able to afford to acquire. And it's an easy-to-manage investment type, buy fund units and that's it. This creates an economy of scale and ordinary investors can benefit from market gains.
Mutual funds offer a good way to diversify their savings, as they offer the possibility to choose more conservative or risky types of investments depending on the risk profile of each, but also the possibility to invest in a variety of asset classes and industries. .
You can invest as much as you can, there is no minimum amount and you can withdraw your money when you consider. The law obliges mutual funds to redeem their fund units upon request. However, keep in mind that there are fees for withdrawing funds.
Unlimited access to information on the fund's activities. The law stipulates that mutual funds must publish information about what risks they take and what objectives they want to achieve.
Mutual funds earn income:
From dividends or interest on various assets in the portfolio
When the net worth of the portfolio increases
When he sells an asset at a higher price than the one he bought it from
Types of mutual funds
There are a variety of mutual funds that offer a wide range of potential return and risk opportunities. Here is a classification of mutual funds:
Monetary funds - are the safest, low risk and low return, equivalent to a savings account. Prudent investment strategy, invests heavily in bank deposits, government bonds, mortgages and bonds.
Fixed income instrument funds and bond funds. They aim to provide a steady income to investors, take medium risks and as a result earnings are average. The vast majority is invested in bonds and monetary instruments and only 10-20% in shares.
Diversified funds - the risk is above average, towards high risk, investments are made in a balanced manner, about half in bonds and monetary instruments and half in stocks
Equity funds - are considered the funds with the highest risks, but also with the highest earning potential. Stock market fluctuations can affect profits but can also lead to losses.
There are other types of funds that are preferred by investors for certain characteristics:
Funds traded on the stock exchange known as ETFs. They have the advantage of being traded on the stock exchange, as well as shares, but they propose diversification specific to mutual funds. Plus they have lower fees than mutual funds.
Index funds. It is based on a benchmark such as the DAX, Nasdaq, S & P500. These funds are comprised only of shares of that index. It offers risks and returns in line with those of that market.
