In recent days, we have warned our readers that in the future, we will increasingly have to worry about a fall in real yield on deposits. That is, as long as deposit rates remain low, inflation may increase, meaning our money may lose its value even in a bank. It is worth looking at other investments than mutual funds, for example. But what tree does an investment fund do?
Many people are unfamiliar with these products, even though they don’t have to think about complicated dogs. Mutual funds allow us to enjoy relatively small amounts of capital from securities and other investments.
We can get in with small capital because we can buy securities with several investors at the same time. The fund manager manages the assets owned by investors in exchange for a fee. This wealth of assets is needed to reduce the risk of riskier investments as you can build a larger portfolio. There is no way to do it out of our own money, we could only invest in one or two types of securities, which would be much riskier. An investment fund can be subscribed by purchasing investment certificates, the value of which depends on the manager’s success.
Why is a mutual fund more risky than deposits?
The value of the fund, but also the value per unit, depends on the total value of the fund’s portfolio. When choosing a fund, we always have to decide what kind of return we want to achieve and what risks we want to take. Funds represent much lower risks than buying securities ourselves, but here too, the higher risks typically involve higher yields, we must always consider these two factors when investing.
What are the types of mutual funds?
From the point of view of the liquidity (redemption) of units, funds can be divided into two main groups. In the case of open-end funds, the units may be purchased or redeemed on a continuous basis, whereas in the case of closed-end funds the redemption may be effected only after the maturity of the fund, or by liquidation of the fund.
There are public and private funds that are created by the fund manager for a predetermined group of investors.
Legislation distinguishes between basic types according to operational features and the associated investment limits and regulations – writes Bamasx’s website. Thus, besides or within the most generalized securities funds, there are so-called equity funds. index funds (which virtually replicate the composition of some capital market idex), fund funds (only buy units of other funds) and funds investing in derivatives. The latter are characterized by the fact that they are more freely bound to the so-called. derivative contracts that aim either to achieve a higher level of return / risk or, on the contrary, to reduce securities market risks (this is how most funds with guaranteed returns are created).