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What Is Mutual Funds

What Is Mutual Funds

17.10.2020

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Mutual funds are one of the ways to increase one’s own money. It is collective, i.e. a joint financial instrument through which the funds of many investors are combined into a specially created fund.

Mutual funds are created by a specialized management company that has the necessary license, the activities of which are controlled by a state body — the Federal Financial Markets Service. A fund is a kind of “common basket” into which private individuals (investors) “throw” their activities.

Who works in these funds?

The fund includes professional investors (managers, analysts, traders), whose main task is:

  • To place funds of shareholders in various financial instruments;
  • To increase depositors’ funds.

To do this, they invest the money received in securities (stocks, options, futures, etc.), or other assets, in order to generate income.

Using mutual funds and shares

Since the shareholders invest a different amount of money in mutual funds, they decided to measure the share of the shareholder in the fund. Accordingly, in order to invest your money in mutual funds, it is necessary to buy fund shares.

Mutual funds combine the money of different investors in order to invest them in some financial working instruments collectively.

Buying and selling shares

You can buy a share or a few shares — their number depends on the price of the share and the amount you paid.

A share can be sold, bought, or mortgaged. Ideally, its price is increasing every day. 

In order to withdraw your money from the Fund, it is necessary to sell the shares. But this does not mean that you will have to run and sell everything yourself. You simply write an application to the Fund, with a request to sell the shares and transfer the proceeds to your account.

The special financial institution manages the funds of mutual funds. It decides what kind of securities or other assets to buy, when to buy them and when to sell.

Mutual funds characteristics

The main characteristic of a mutual fund is investment direction. Some people choose stocks, others — bonds, and others — currency, real estate, or art. Many mutual funds combine assets of several types.

The funds of the best and most qualified investors can “go” in almost any asset. The funds for unqualified investors direct funds to the least risky stuff.

FinanceWorld experts mark the following advantages of these funds, which are evident. They are:

  • Availability;
  • Professionalism;
  • High income;
  • Low cost
  • Liquidity;
  • Preferential taxation.

Why should you invest in these funds?

These funds are an alternative to bank deposits, which are the most favorite way to preserve and increase the own funds of the majority of the population because everything is simple and clear there. Everything else can seem difficult and incomprehensible

The main problem of a modern person is the lack of sufficient time. People just have no time to invest, keep track of news, and analyze the situation. Therefore, it is easier to give money to where they can be returned with interest. And the more interest the better.

However, the trouble with bank deposits is that they provide limited returns, which, at best, barely cover inflation.

Therefore, investors are looking for the best possible ways to invest money. And one of such methods is mutual investment funds, the yield on which can significantly exceed bank deposits.

These funds and bank deposits are the easiest ways to increase their own funds. The remaining financial instruments are either more complicated or have certain limitations.

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