Mutual fund. Mutual Funds Mutual investment fund

In this article we will show you how to find investment funds, how to invest in them and how much you can earn by investing in investment funds.

Since its inception, in 1822 In Belgium, mutual funds have become a popular investment vehicle. In 1951, there were already more than a hundred funds with 1 million investors in the United States, and today there are more than 120 million in the United States alone. Simplicity and efficiency bring great benefits to investors who lack the knowledge, experience or time to trade on the stock exchange on their own.

What is an investment fund and how many are there?

Investment fund is an organization that manages investors' funds, which are used to purchase securities, forming a huge portfolio. Thanks to the accumulation of large capital, an investment fund can purchase securities on favorable terms and bring more profit than individual market participants. The profit received is divided among investors as a percentage of their deposits, minus the fund manager's commission, which can be from 7 to 20%.

Currently there are such types of investment funds, How

mutual investment funds (share funds),
stock exchange,
money market funds,
hedge funds...

But today in the world the most common management type investment mutual funds, these are organizations in the form of a joint stock company, when investors can, instead of the usual deposits and contracts, simply buy their shares. Shareholders will receive profit in the form of dividends, as well as an increase in the value of securities. Today the share of such investment funds is 93,3% .

Today, mutual fund assets exceed $6 trillion.

In general, mutual funds are an analogue of Russian mutual investment funds ( mutual fund), only instead of shares, investors buy their shares, which makes the investment process quite easy, because in order to do so, you don’t even have to leave your home.

Now about 38% Americans are shareholders of mutual funds.

At every decent job in the United States, companies pay pension contributions for employees, while employees are given the right to choose where their pension savings will go - these are portfolios of stocks, bonds and other exchange-traded assets with low and protected risk. This is how retirees in developed countries can afford to travel and buy new cars.

In Europe, mutual funds are similar to the United States, but are governed by different, similar laws.

How investment funds work in the world and in Russia

In general, based on the definition of what an investment fund is and what they are, the principle of operation should already be clear. As in the case of shares, the value of shares of mutual funds is determined based on the value of all assets of the funds per 1 share, or for example a unit. The value of assets is calculated daily.

Mutual fund shareholders can sell shares to the fund upon request, and in the case of mutual funds, there may be minimum investment periods, for example, you can redeem the shares no earlier than in 3-6 months.

Unlike mutual fund shares of Russian banks and companies, where separate registrations and signatures of agreements are required, mutual fund shares are much more flexible, because through, for example, a broker (), you can buy fund shares USA, France, Argentina, India, Japan and so on.

Ratings, details, performance statistics and share prices of mutual funds can be viewed on TheStreet and moneycontrol.

If we talk about how much you can earn on investment funds, then according to the rating, profitability indicators border on 12-40% per annum. When calculating the expected profit, it is worth considering that the profit of funds is not stable and if you invest for 3-5 years, then you should look not at the profitability of the last year, but at the total profitability for the last 5-8 years.

Below we will look at examples of investment funds and their profitability, as well as methods of investing in investment funds.

The work of the investment fund is guaranteed by such international acts as “ Investment Company Law" And " Securities Law", in Russia this activity is regulated by Federal Law No. 156 “On Investment Funds”, in the USA - Securities and Exchange Commission ( SEC), in Europe this is mainly a concept UCITS– “Undertaking for Collective Investment in Transferable Securities” (“ Agreement on collective investment in transferable securities"), therefore the activities of the funds are protected, and investors do not risk becoming victims of fraud.

For those who already know how an investment fund works, it would be useful to familiarize yourself with the “golden rules” of working with funds, first formulated by the famous financier:

Invest only in funds whose activities are easy to understand. If the work of a fund is too complex to quickly and concisely explain, this is the first sign that specific schemes are involved. It's better to stick to organizations that operate more simply
Rely on periods of 5 years or more. High-yield funds are great, but betting on high-volatility assets isn't always a wise decision. Even the famous one called for using the least risky management strategies, which allow you to slowly but surely increase your capital.
Pay only justifiable expenses. Tax efficiency, estimated net income, possible risk factors - all this must be weighed against each other, constantly making sure that the profit more than pays for all expenses.

How to invest in an investment fund and earn money

Like most other financial instruments, investing in funds today has completely moved into online. So there is no need to rack your brains about where to find an investment fund.

If you want to buy shares of mutual funds, then you need to study their ratings in English in the popular publications that we listed above.

If you have made your choice, then all that remains is to buy their shares, which is no more difficult than ordering pizza on the Internet.

We will only talk about the most affordable and best options for citizens RF And CIS. For example, in Russia there is a law on investing in foreign shares through Russian brokers, according to which they can only be purchased by a qualified investor with a minimum amount 6 million rubles. To circumvent this law, all Russian brokers create subsidiaries in Europe. (EU) followed this path.

Here it has direct access to all world exchanges and a single account for trading stocks, bonds and other assets.

The minimum deposit for Finam is only $200 .

One of the main advantages of collective investment is minimal investment risks and high safety of the deposit. It is for this reason that investing in funds is becoming increasingly popular.

Initially, it may seem that investment funds on average give a low percentage of profit, but their essence is not to get rich in a year, but to earn a fortune within 10-25 years, look at how it works with reinvestments and you will understand how pension funds work in the USA and why are they so rich.

Advantages of investment funds

Having learned what an investment fund is, it would be useful to emphasize its main advantages:

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A mutual fund is a form of collective investment that allows investors (shareholders) to purchase a share of a fund, thereby gaining access to a portfolio of its assets. The principle of operation of a mutual fund looks like this.

The investment company that established the mutual fund sells shares to investors and invests the proceeds in a portfolio of securities. The choice of assets is determined by the investment objectives of the fund.

Information about the fund's investment strategy, its risks and returns, as well as any commissions and fees charged can be found on the fund's website and in its prospectus. For example, the description of the Fidelity Europe Fund (FIEUX) mutual fund, which invests in European stocks, on the fund’s website looks like this, and the Fund Summary Prospectus of this fund looks like this.

Control of mutual funds in the USA

An independent management company (MC) oversees the operation of the fund, while the risks of the fund are insured against unlawful actions on the part of the management company’s employees.

Mutual funds are regulated by the U.S. Securities and Exchange Commission (SEC).

The storage and accounting of mutual fund assets is carried out by the custodian (depository bank).

Mutual funds notify the SEC of their investment objectives and vehicles, provide performance data, and provide financial disclosures. In addition, unlike investment banks and savings and loans, mutual funds must:

Have sufficient funds to repurchase shares at the request of their owners.
Assess your assets at the end of each trading day.

Due to the need to comply with these requirements, mutual funds offer greater transparency to investors and are viewed by them as a reliable way to invest funds.

Top Performing Mutual Funds – Yahoo!Finance
Finding Alternative Mutual Fund ETFs (Mutual Fund to ETF Converter) – Etfdb.com

Types of Mutual Funds

Mutual funds are of open (Open-ended Mutual Funds) and closed (Close-ended Mutual Funds) types.

1. An open-end mutual fund constantly issues new units (shares) and buys them back from shareholders. The No-load Mutual Fund sells its units (shares) without commission. A Load Mutual Fund sells its shares and charges a commission.

2. A closed-end mutual fund issues a limited number of units (shares) and does not buy them back from shareholders.

Closed-end mutual funds	Open ended mutual funds
Issue a fixed number of shares	Issue an unlimited number of shares
Units are traded on stock exchanges	Units are sold and purchased only through the fund
Units can be traded at a price higher or lower or equal to the value of net assets* per share	Units are traded at a price equal to the net asset value* per unit
The price of a unit depends on the fundamental indicators of the fund’s assets and the ratio of supply and demand in the market	The price of a unit depends only on the fundamental indicators of the fund’s assets

* Net Asset Value (NAV) is the current market value of the fund's net assets minus its liabilities, divided by the number of shares issued.

Types of Mutual Funds

According to the type (class) of assets in which mutual funds invest funds of shareholders, they are divided into:

Equity funds(Stock Mutual Funds): 1. active (supported by managers); 1.2. passive index funds, which copy the market index (Index Funds) and their variety - exchange traded funds (ETFs).

Bond funds(Bond Mutual Funds): 1. taxable (Taxable Bond Mutual Funds), investing in long-term government and corporate bonds; 2. Tax-free Bond Mutual Funds, investing in long-term municipal bonds.

Balanced funds(Balanced Mutual Funds), which invest in stocks and bonds.

Money Market Funds(Money Market Funds): 1. taxable (Taxable Bond Mutual Funds), investing in short-term government and corporate debt securities; 2. tax-exempt (Tax-free Bond Mutual Funds, investing in short-term debt securities of states and municipalities.

Real estate funds, investing in commercial, residential and social real estate properties (REITs).

Mutual Fund Returns

The return of a mutual fund is the sum of its total return and transaction costs. In turn, the total income of the fund is determined by calculating its dividend (interest) income and the change in the value of its net assets - NAV (Net Asset Value, NAV) for the period.

When the price of assets in a fund's portfolio rises, so does its total return. A decrease in net asset value leads to a decrease in the fund's return.

An additional source of return for the fund is the reinvestment of dividends received on shares in the asset portfolio. If dividends paid by the fund are reinvested in the purchase of new securities, this contributes to the growth of its total return.

A fund's expenses reduce its total return and the investor's return. A list of all expenses and fees (Fees, Expenses & Loads) is provided on the website and in the Fund Summary Prospectus. Typically this is a fee for:

active management (Management Fee);
purchase and sale of shares (Transaction Fee);
early redemption (sale) of shares (Redemption Fee);
reduction of account balance (Small Balance Fee);

as well as various fees:

from the down payment (Front-End Load);
for additional services (Service Fee);
when distributing profits (Distribution Fees);
under Rule 12(b)-1 (12b-1 Fees).

SEC Rule 12(b)-1– a fee charged annually by some funds to cover the fund's marketing expenses, as well as the cost of paying commissions to brokers. They are set as a percentage of the value of investors' assets and are deducted from the fund's assets.

Because open-end mutual funds may charge a premium when purchasing units (load funds), an investor should evaluate the effective load of such a fund. Its size can be determined by subtracting the NAV per 1 share from the offer price.

For example, the load value is 5% (0.05) of the share value, and the estimated share value based on NAV (net asset value) is $30. Then:

Offer price = NAV per share / (1 – Load Amount) = 30 / (1 – 0.05) = $31.58

The investor pays $1.58 ($30 -$31.58) on top of the price. In this case, the value of the load as a percentage of the value of net assets per 1 share turns out to be above 5%:

Effective load value = Load value / NAV per 1 share = 1.58/30.00 = 5.27%.

Important: a load may be imposed on the sale of assets and withdrawal from the fund, and may also apply to reinvested dividends. In addition, many funds that market themselves as no-load may charge such a high Rule 12(b)-1 percentage that it resembles a hidden load.

Due to the significant amount of expenses, most mutual funds provide returns below the market average. As a result, more and more investors are opting for its low-cost alternative, an exchange-traded fund (ETF).

Increase in income

The table comparing open-ended and closed-end funds shows that units (shares) of closed-end funds, unlike open-end funds, are bought and sold not only relative to the net asset value (NAV), but also taking into account market conditions and other indicators.

As a result, closed-end fund shares may trade above or below their estimated value (at a premium or discount to NAV). For an investor, this opportunity means additional benefits. The premium or discount is calculated like this.

Premium (discount) = (Market price – NAV per 1 share) / NAV per 1 share

Important: investors should not purchase shares of a closed-end fund during their initial offering (placement), but rather wait until the portfolio is formed and its composition and profitability become known.

The reason for this is that the buying and selling of closed-end fund shares is done through brokers. Brokers charge a commission for selling shares, and this can be very high, which will negatively affect the price of shares once they begin trading.

For example, if a closed-end fund sells 1 million shares at a price of $10 per share, and the broker's commission is 5%, then the fund will only be able to attract $9.5 million to invest in assets, and the shares will then trade at a discount to the offer price.

Mutual Fund Investor Taxes

Due to the fact that investment funds do not pay taxes, all income from securities and income on capital are distributed among its shareholders. Individual investors in mutual funds pay taxes on dividends and capital gains.

When dividends and income received are reinvested back into the fund, these amounts are added to the basis price of the assets and taxes on them are accrued and paid when the shares are sold.

Whenever an investor purchases fund shares, there are tax consequences. Additionally, there may be an accrued tax liability when you purchase mutual fund shares at the end of the year. If the fund has retained earnings at the end of the year, they will be taken into account in the tax amount, even if the investor did not own the shares at the time the fund received them.

Mutual Fund Risks

The key risk of investing in a mutual fund is the risk of loss of invested capital due to a decline in its net asset value. The reason for such a drop may be the quality of securities, changes in interest rates, and deterioration of the situation in the economy and market.

Thus, rising interest rates lead to lower stock and bond prices, reducing the NAV of stock and bond funds. Lower interest rates cause stock and bond prices and the NAV of stock and bond funds to rise.

The quality of securities determines the volatility (changeability) of stock prices. Small-cap and growth-stock funds rise in value in bull markets and decline in bear markets more often than conservative large-cap stock funds.

In addition, investors who purchase shares of a closed-end fund during an initial offering take on additional risk because they do not know the composition of its assets and cannot evaluate its performance. This is due to the fact that managers begin building portfolios only after primary investors contribute funds to the fund through the purchase of shares.

A mutual fund is an organization created to attract and use funds from private investors for the benefit of those investors. The funds received are invested in securities: stocks, bonds.

A mutual fund is a portfolio of stocks collected and prepared by financial professionals and intended for subsequent resale to small individual investors.

Such funds arose a long time ago and still operate in Western countries. The first of them, Massachusetts Investors Trust, was created in the USA back in 1924. Mutual funds also exist in Russia, but they are called differently - mutual investment funds (UIFs). True, they appeared not so long ago, in the 90s of the last century, and due to well-known events, they do not have a very good reputation. But, despite everything, there are still many such organizations operating in Russia, and so far they are doing an excellent job with the task assigned to them.

Who can join

Any citizen can join a mutual investment fund. In Western countries, such an organization is similar to a pension fund. People invest money in these companies for a long time (20-30 years), and when they retire, they use this accumulated capital for personal purposes.

To become an investor, it is enough to sign an agreement with an investment fund and make an initial contribution. The process of transferring funds as monthly installments can be automated. The money will be transferred from the salary to the investor's account in the fund. To do this, you need to write an application and submit it to the human resources department or the management of the company in which you work.

Depending on the terms of the agreement, the return on each dollar invested can range from 10 to 40%, which is a very high figure, considering how low deposit rates exist not only in Western countries, but also in Russia.

Operating principle

The operating principle of a mutual fund is based on mutually beneficial cooperation between the investor and the management of the organization. It lies in the fact that investors voluntarily contribute funds in order to receive income or preserve the funds they have. With this money, traders buy securities, shares of various companies, government bonds, from which an investment portfolio is formed. The investor is issued a document confirming his right to participate in the amount of the contribution made.

When and how can you get income from investments?

After a certain time, the invested funds, along with the profit, are returned to the investor. He may be paid a dividend or the proceeds from the sale of securities. The terms and conditions of payments depend on the terms of the agreement between the depositor and the institution.

For its services, the institution charges a commission of 0.3 to 1%. The percentage depends on the type of fund, its history and the conditions of access to financial instruments provided by financial institutions: banks, credit institutions, joint-stock companies.

Is there a risk of losing investment?

Since a mutual fund conducts risky transactions on the stock exchange and buys bonds, investors naturally fear that the fund may purchase the wrong securities and go bankrupt. This has happened more than once in human history. Such events are especially fresh in the memory of Russians, where many early mutual funds went bust. Unfortunately, even today there are fraudulent organizations under the guise of investment funds, so when choosing, you need to weigh the pros and cons.

How to secure capital

You should only invest in old and time-tested organizations. Since most non-competitive funds “burst” back in 1997, there is no longer a big risk of losing savings. If you are not confident in domestic funds, you can invest in foreign ones. Thanks to the development of means of communication in our time, this has become possible.
Study the financial statements of the funds. They, like any commercial organizations that issue shares, are required to publish financial statements on their website or on the stock exchange. An auditor's report must be attached to the financial statements. If the auditor expressed doubts in this document about the reliability of the financial statements, then you should not invest.
Calculate your risk/reward ratio. The higher the profit, the higher the risk. But the risk must be justified. You should not invest money in new mutual funds that have an aggressive strategy to increase profits for the long term. Such institutions quickly appear on the market, but disappear just as quickly.

Stock trading remains a risky business. Funds help increase capital, but they do not eliminate the risk of losing an investment in the event of sudden changes in the stock market. They help investors, but do not relieve them of responsibility for the fate of the money invested.

Benefits of investing

If we compare independent investing on the stock exchange, in other financial institutions and investments in various funds, the latter have advantages:

they have professional analysts on their staff;
these organizations have access to information that is often inaccessible to a private trader or comes to him very late;
they have access to risk insurance services that are not available to private individuals;
they own significantly more capital than an individual citizen, and can invest heavily by purchasing shares in expensive companies.

To successfully trade on the stock exchange, you need to have special knowledge and be aware of the latest events in the economy, study the statements of hundreds of companies whose shares are listed there. This requires not only considerable funds for the purchase of expensive textbooks, but also free time to study them. Therefore, it is more profitable to invest in a fund and receive income from its work than to engage in trading itself.

How are they classified?

Mutual funds are classified according to the type of securities purchased and the purpose of investment.

Funds created to increase capital. Such institutions specialize in purchasing securities whose prices will rise rapidly. Companies that issue such shares invest all funds received in their development. Therefore, they do not pay dividends to their shareholders. Investing in such stocks is a big but justifiable risk. If the company develops and becomes successful, capital growth can increase several times.
Funds whose purpose is to increase income. They are in the business of buying stocks that pay the highest dividends or percentage of profits. The growth of the exchange rate of these securities is of secondary importance.
Funds designed for capital growth and income. They have a strategy whereby their traders look for stocks that the investor can receive a dividend on, but at the same time the value of these securities will increase.
Balanced fund. This is an organization with a flexible trading strategy. It sells and buys shares of companies on the stock exchange, depending on the current market situation. In a financial crisis, the management of an institution may decide to convert some securities into others, for example, stocks into bonds.

In connection with the opening of other markets, in addition to the purchase and sale of shares and bonds, they are increasingly investing in foreign currencies. New money market mutual funds have opened that specialize in investment and speculative transactions in currencies.

What are the conditions for entry and exit?

In order to become a member of a mutual fund, it is enough to draw up an agreement with the relevant organization and make an initial contribution. In the future, depending on the conditions specified in the contract, you can make additional contributions monthly or as needed. The contribution amount depends on the investment policy of a particular fund.

It is as easy to leave such an organization as it is to enter, but only if it operates stably. That is, it is enough to come to the institution with a shareholder ID and passport to receive funds back with a profit. However, not everything is so simple. It all depends on the conditions specified in the contract. If you withdraw funds earlier, you may have to pay a fine or lose part of the income received.

In crisis situations, when there are an alarming number of people wanting to withdraw their money, the fund may suspend the return of funds to investors. Therefore, economists recommend investing only if the institution has been operating in the market for at least 3 years. Look for funds with a long history and be wary of scammers.

Mutual funds ( English Mutual Funds) are one of the most common investment vehicles for beginning investors. They are essentially a basket of investments called a portfolio. Such a portfolio may include dozens or even hundreds of securities, such as stocks and bonds. Therefore, when an investor invests in a mutual fund, he or she is buying not just one security, but a basket of securities.

Risks of investing in a mutual fund

Investing in mutual funds involves taking systematic (non-diversifiable) and unsystematic (diversifiable) risk. Systematic risk is inherent in the market as a whole and means that there is always a possibility that an investor could lose part of his investment, regardless of what instruments he invested in. Unsystematic risk, on the other hand, is inherent in investing in a particular security. In order to minimize it, mutual funds professionally diversify their portfolios by investing funds received from investors in a variety of financial instruments.

Where to start?

In this matter, it is better to follow the wise saying and “don’t put all your eggs in one basket.” For a novice investor, it is almost impossible to create a diversified portfolio of securities, since this requires not only professional training, but also the availability of significant investment capital to purchase a basket of securities. You can obtain the necessary knowledge to get started, for example, at investment courses in Moscow. In turn, investing in mutual funds allows you to significantly reduce the minimum amount of investment capital, since the fund forms a diversified portfolio, accumulating the funds of a large number of individual investors.

Let's talk about index funds

In most cases, investing in index funds is the best alternative. The portfolio of such a fund follows the structure of an index, for example, the S&P 500, FTSE 100 or Dow Jones. The result is a well-diversified portfolio, investing in which involves minimal unsystematic risk. In addition, investing in various index funds deepens the diversification of an investor's individual portfolio.

Investing requires certain professional training, which is best obtained through various investment courses for beginners. If you do not have enough free time and professional skills, then using the services of an investment advisor is the best choice. He can provide not only advice on choosing a mutual fund, but also help create an individual portfolio.

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Playing on the stock exchange can make almost anyone bankrupt or a millionaire. It is the desire to become a rich person that is a strong motivation to study the stock market. However, the larger the amount you want to receive, the greater the risks. Mutual funds are designed to reduce this risk, but in this case the profit will not be so cosmic. Let us consider in this article what mutual funds are and what they are like.

Mutual fund or mutual fund (mutualfund)– a portfolio of shares selected and purchased by professional financiers using the investments of thousands of small investors. In this way, the investor reduces risk because his investment is spread across a large number of different businesses.

Investors (that is, you) are called shareholders, and the share of the fund that you purchase is called a unit.

On the stock exchange there is a huge chance of going broke very quickly, which is why mutual funds are so popular. This is not a new invention: the first mutual fund was created in the United States in 1924. Playing on the stock exchange, even for experienced investors, is something like a casino. The exchange is quite chaotic and unpredictable and few people even understand the rules of the game. But those who understand become billionaires, like Warren Buffett.

Types of Mutual Funds

There are two types of mutual funds: open-end and closed-end.

Open ended mutual fund issues new shares (units) and buys them back from shareholders. It also has the following features:

The price of a unit depends only on the fundamental indicators of the fund’s assets.
Units are sold and purchased only through the fund.
An unlimited number of shares can be issued.
Units are traded at a price equal to the net asset value per unit. Net asset is the value of the fund's net assets divided by the number of shares (units).

A closed-end mutual fund issues a limited number of shares (units) and does not repurchase them from shareholders. It has the following features:

The price of a unit depends on the fundamental indicators of the fund’s assets and the ratio of supply and demand in the market.
Units are traded on stock exchanges.
A limited number of shares are issued.
Units may trade at a price above, below or equal to the net asset value per unit.

Based on asset type, mutual funds are divided into stock funds, bond funds, balanced income funds, money market funds and real estate funds.

Let's look at four steps to investing in these funds.

Investing in Mutual Funds

Select a financial institution

You can choose a huge number of such institutions, because there are a lot of people willing to manage your finances. If your funds are quite limited, you can try to invest the money yourself. In this case, you will need to study everything yourself and carefully monitor the placement and results of your investments.

If your capital allows, you can hire a financial advisor. Such people take a substantial amount for their work plus interest on their income.

Remember that you should not focus on funds that performed well a year or two ago. These indicators may not be current.

Determine the risk

Even mutual funds have some risk. In addition, they have varying degrees of risk: from low to high. You can find risk ratings for each mutual fund on financial websites. Typically, this is a scale from 1 to 5. The greater the risk, the greater the reward is likely to be.

You can invest a small amount of money in a very risky fund and the rest of your money in a less risky one.

Invest in different funds

Diversification of investments is extremely important for successful investing. Experienced investors advise investing in assets of different classes. These could be equity funds for enterprises in your country or other countries, funds in specific industries (real estate, agriculture), bond funds. This way you will not be subject to fluctuations in the development of a particular industry. Remember the golden rule of business: “Don’t put all your eggs in one basket.” It has to do with risks. Spread the risks.

Don't try to predict market developments

This is an incredibly difficult task even for experienced investors. Although you can study the market and its trends. Invest for the long term (more than five years) - this way the short-term ups and downs of the market will not have a big impact on you.

We wish you good luck!