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