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Mutual Funds, the new way of saving in the new millennium

ITIPress.org - Marlon Jerez / Consulting in Economics and Finance

Nowadays, people face many decisions, for example, education of their children, the house they want to live in and which is appropriate for their budget, buying a car, etc. Saving is a key to achieve the former. There are many different ways ranging from having a savings account in a bank to more sophisticated investment instruments. In the last decade, mutual funds rose to great importance as a means of saving in order to achieve a higher interest rate as conventional savings instruments.

Mutual Funds are well organized companies which allow a small investor the same possibilities as big companies. The idea of investing the money in mutual funds is to give it to experts so that they invest it and achieve a higher return in concordance of the investor’s risk profile. You can invest in mutual funds even with small amounts, not necessarily a lot of money.

Mutual funds are investment companies where all the money, which investors give to them, is united. The total amount is used to obtain different investment instruments depending on the type of fund. There are even mutual funds with fixed return, where most of the money is invested in US treasury bonds. Or, there are others which variable returns which invest mostly in the New York stock market. As always, fixed income mutual funds are less risky, but turn back a lower return. 

The participation of the investors is in shares, which represent a part of the securities titles in the fund. The price of the share is based on the current value of the assets in the fund (securities, bonds, etc.). If the value of the assets rises, the price of the share rises and vice versa. The share price is measured in the NAV (Net Asset Value).

The owner of the shares of a mutual fund can easily take out his invested money buy selling his shares and receives the NAV of these shares. This makes mutual funds a very liquid investment.

There are many classes of investment funds in the market, which adapt to the investors’ needs. Some, for instance, are indexed, which means, there are based on the existing market indices like the S&P 500, NASDAQ, Dow Jones or sector based like the 500 biggest technology companies, Biotechnology or banking sector.

Depending on the sales commission which they charge, they are called load or no-load funds. This is generally a percentage of the invested money and it is charged when realizing the investment. A no-load fund doesn’t charge sales commission, because they do not have a sales team. Those funds are usually sold over the internet.

"A wise man will make more opportunities than he finds”. Sir Francis Bacon 




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